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1) Thomson Reuters, “2014 National Venture Capital Association Yearbook,” www.nvca.org
2) NVCA & Deloitte, “2014 Global Confidence Survey”, www.nvca.org
3) NVCA & Medical Innovation Competitive Coalition, “Patient Capital 3.0: Confronting the Crisis and Achieving the Promise of Venture-Backed Medical Companies” www.nvca.org (2013)
4) Steve Kaplan, “Private Equity and Venture Capital: Past, Present and Future,” University of Chicago Booth School of Business (2012)
5) Steven Kaplan and Josh Lerner, “It Ain’t Broke: The Past, Present and Future of Venture Capital,” Journal of Applied Corporate Finance 22 (2010), 1-12
6) Paul Gompers, Anna Kovner, Josh Lerner, and David Scharfstein, “Performance Persistence in Entrepreneurship,” Journal of Finance 96 (2010), 18-32
7) Paul Gompers, Anna Kovner, Josh Lerner, and David Scharfstein, “Specialization and Success: Evidence from Venture Capital,” Journal of Economics and Management 18 (2009), 817-844
8) Morten Sorensen, “How Smart is Smart Money? A Two-Sided Matching Model of Venture Capital,”Journal of Finance 62 (2007), 2725-2762
9) Steven Kaplan and Antoinette Schoar, “Private Equity Performance: Returns, Persistence, and Capital Flows,” Journal of Finance 60 (2005), 1791-1823
This paper examines the performance of venture capital-backed companies while they are private. It characterizes the companies based upon the experience of the founder team. It finds that companies that are started by successful serial entrepreneurs, i.e., those that have successfully started and exited a company in the past, have much higher returns on their startups. First time entrepreneurs and entrepreneurs who have started a company in the past but failed have substantially lower returns. The paper then finds that experienced venture capital firms have a much higher proportion of their portfolio in successful serial entrepreneurs and that this accounts for a portion of the out performance of top tier venture capital firms. It highlights the critical role played by the entrepreneur and the need to attract great entrepreneurs.
This paper looks at fund level returns in the venture capital and buyout space. It creates a unique measure of comparing fund returns, the Public Market Equivalent, PME. It then looks at the performance of venture capital and buyout funds. The paper shows that there is strong persistence of returns in the venture capital and buyout industry. It also compares the performance of venture capital and buyout funds to their PMEs. It concludes that venture capital funds outperform the public market on a gross basis but that buyout funds do not.
This paper looks at the relative performance of venture capital firms that specialize vs. venture capital firms that invest in multiple industries. It characterizes both the investment focus of the venture capital firm as well as the venture capital focus of the individual general partner. The paper finds a substantial return premium for venture capitalists that specialize. On average, the best performing firms have specializations. When the performance of individual GPs is examined, it is discovered that as long as individual GPs specialize in an industry, there is no material performance penalty for the firm to invest in multiple industries. In other words, the critical element of venture capital investment success is mediated by having specialized GPs within a fund.
This paper attempts to distinguish performance persistence by venture capitalists. In particular, it develops a new statistical technique to separate out how much of the persistence is driven by attracting the best entrepreneurs and how much is driven by value-add. The paper shows that experienced venture capitalists do indeed have higher returns. It finds that value-add and deal flow are both important for higher returns. When compared with each other, however, access to the best entrepreneurs appears to be about twice as important.
This paper examines the recent performance of venture capital investments in the US. It examines both macroeconomic factors as well as industry dynamics. It provides a framework for predicting how the industry might perform into the future. It predicts that returns going forward are likely to be attractive given current trends and conditions.