The Size of Venture Capital and Private Equity Fund Portfolios

55 Pages Posted: 22 Nov 2006 Last revised: 12 Nov 2013

Gennaro Bernile

University of Miami - School of Business Administration

Douglas J. Cumming

York University - Schulich School of Business

Evgeny Lyandres

Boston University; Interdisciplinary Center (IDC) Herzliyah

Date Written: 2007

Abstract

We propose a model that examines the optimal size of venture capital and private equity fund portfolios. The relationship between a VC and entrepreneurs is characterized by double-sided moral hazard, which causes the VC to trade off larger portfolios against lower values of portfolio companies. We analyze the structural relations between the VC's optimal portfolio structure and entrepreneurs' and VC's productivities, their disutilities of effort, the value of a successful project, and the required initial investment in a venture. We also test the model's predictions using a small proprietary dataset collected through a survey targeted to VC and private equity funds worldwide.

Suggested Citation

Bernile, Gennaro and Cumming, Douglas J. and Lyandres, Evgeny, The Size of Venture Capital and Private Equity Fund Portfolios (2007). Journal of Corporate Finance, Vol. 13, pp. 564-590, 2007. Available at SSRN: https://ssrn.com/abstract=946671

Gennaro Bernile

University of Miami - School of Business Administration ( email )

5250 University Dr
Coral Gables, FL 33146
United States

Douglas J. Cumming

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Evgeny Lyandres (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-3582279 (Phone)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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