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Building A Venture Capital Index

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  • Liang Peng

Abstract

This paper builds a venture capital index from 1987 to 1999 that consists of 12,946 rounds of venture financing with 5,643 venture-backed firms. The paper uses two innovative techniques, a re-weighting procedure and a method of moment repeat sales regression, to mitigates three problems - missing data, censored data, and sample selection. We report the time series of capital flows, net asset value, and returns of the venture capital index. We find that the venture capital industry experienced dramatic growth in the sample periods, in terms of capital flows, the number of financing rounds and venture-backed firms, and the net asset value of the index. In addition, the returns to venture capital are high and volatile. The geometric average return is 55.18% per year in the sample periods, with the lowest annual return in 1990 (-5.94%)and the highest in 1999 (681.22%). The venture capital index has much higher volatility than SP 500 and NASDAQ. Moreover, we find significant correlation between the venture capital index and NASDAQ for returns and volatility.

Suggested Citation

  • Liang Peng, 2001. "Building A Venture Capital Index," Yale School of Management Working Papers ysm221, Yale School of Management, revised 01 Oct 2001.
    • Handle: RePEc:ysm:somwrk:ysm221
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    File URL: http://icfpub.som.yale.edu/publications/2532
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    References listed on IDEAS

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    1. Gompers, Paul & Lerner, Josh, 2000. "Money chasing deals? The impact of fund inflows on private equity valuation," Journal of Financial Economics, Elsevier, vol. 55(2), pages 281-325, February.
    2. Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2000. "The Private Equity Premium Puzzle," CRSP working papers 524, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    3. Cochrane, John H., 2005. "The risk and return of venture capital," Journal of Financial Economics, Elsevier, vol. 75(1), pages 3-52, January.
    4. Liang Peng, 2001. "A New Approach of Valuing Illiquid Asset Portfolios," Yale School of Management Working Papers ysm175, Yale School of Management, revised 01 Aug 2001.
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    Cited by:

    1. Masulis, Ronald W. & Nahata, Rajarishi, 2009. "Financial contracting with strategic investors: Evidence from corporate venture capital backed IPOs," Journal of Financial Intermediation, Elsevier, vol. 18(4), pages 599-631, October.
    2. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2006. "Crowding out private equity: Canadian evidence," Journal of Business Venturing, Elsevier, vol. 21(5), pages 569-609, September.
    3. Arpit Gupta & Stijn Van Nieuwerburgh, 2019. "Valuing Private Equity Strip by Strip," NBER Working Papers 26514, National Bureau of Economic Research, Inc.
    4. Cochrane, John H., 2005. "The risk and return of venture capital," Journal of Financial Economics, Elsevier, vol. 75(1), pages 3-52, January.
    5. Tobias Dechant & Konrad Finkenzeller, 2013. "How much into infrastructure? Evidence from dynamic asset allocation," Journal of Property Research, Taylor & Francis Journals, vol. 30(2), pages 103-127, June.
    6. Daniel Wurstbauer & Wolfgang Schäfers, 2015. "Inflation hedging and protection characteristics of infrastructure and real estate assets," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 33(1), pages 19-44, February.

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