Benchmarking the Returns to Venture

32 Pages Posted: 15 Mar 2004

See all articles by Susan E. Woodward

Susan E. Woodward

Sand Hill Econometrics

Robert E. Hall

Hoover Institution and Department of Economics, Stanford University; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2003

Abstract

We describe a new index of the current and historical returns to venture-type capital. The conceptual basis for the index is the value of a continuously reinvested value-weighted portfolio of all venture-backed and similar pre-public companies. It provides a metric for private equity comparable to the S&P 500 for public equity. We build the index from valuations revealed in episodic transactions in the companies' shares - private placements of new rounds of equity funding, IPOs, acquisitions, and liquidations. Our approach to dealing with the episodic nature of the data is similar to the one used in constructing indexes of real-estate value from transaction data for individual properties. We have extended earlier sources of data to deal with selection bias - we tracked down unfavorable valuations that were less likely to be reported in the earlier data. We also use econometric techniques to handle the remaining selection bias. The resulting index has important uses in marking venture portfolios to market and in assessing the performance of venture investments.

Keywords: venture, venture capital, private equity, returns

JEL Classification: G24, G12

Suggested Citation

Woodward, Susan E. and Hall, Robert E., Benchmarking the Returns to Venture (November 2003). Available at SSRN: https://ssrn.com/abstract=474181 or http://dx.doi.org/10.2139/ssrn.474181

Susan E. Woodward

Sand Hill Econometrics ( email )

1682 Oak Avenue
Menlo Park, CA 94025
United States
650 322 7456 (Phone)

Robert E. Hall (Contact Author)

Hoover Institution and Department of Economics, Stanford University ( email )

Stanford, CA 94305-6010
United States
650-723-2215 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
650-723-2215 (Phone)

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