Hostname: page-component-8448b6f56d-jr42d Total loading time: 0 Render date: 2024-04-19T11:11:55.340Z Has data issue: false hasContentIssue false
  • English
  • Français

An Analysis of the Performance of Publicly Traded Venture Capital Companies

Published online by Cambridge University Press:  06 April 2009

John D. Martin  and
J. William Petty
Get access Rights & Permissions [Opens in a new window]

Extract

Venture capital companies can be likened to mutual funds that make investments in small, new businesses. However, investments made by venture capitalists are unique in several ways [2]: (1) usually five or more years are required for a new firm to become well enough established that a venture capitalist can liquidate an investment; (2) during the early years of an investment, there is no organized secondary market for its shares; (3) the new firm characteristically faces a high risk of failure; and (4) several infusions of capital are usually required before the new enterprise becomes a going concern. Consequently, the investments made by the venture capital firm have long been considered to carry high risks as well as the potential for high returns. For this reason, venture capital firms actively diversify, investing in a portfolio of individual projects. Thus, the risk and return attributes of the venture capitalist's diversified portfolio will not totally mirror those of its individual investments.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 18 , Issue 3 , September 1983 , pp. 401 - 410
Copyright
Copyright © School of Business Administration, University of Washington 1983

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Arrow, Kenneth. Essays in the Theory of Risk Bearing. Chicago, IL: Markham Publishing Company (1971).Google Scholar
[2]Cooper, Ian A., and Carleton, Willard T.. “Venture Capital.” The Journal of Finance, Vol. 34 (05 1979), pp. 517–529.Google Scholar
[3]Fast, Norman. “A Visit to the New Venture Graveyard.” Research Management, Vol. 22 (03 1979), pp. 18–22.CrossRefGoogle Scholar
[4]Huntsman, Blaine, and Hoban, James P. Jr “Investment in New Enterprise: Some Empirical Observations on Risk, Return, and Market Structure.” Financial Management, Vol. 9 (Summer 1980), pp. 44–51.CrossRefGoogle Scholar
[5]Meyer, J. “Choice Among Distributions.” Journal of Economic Theory, Vol. 14 (1977), pp. 326–336.CrossRefGoogle Scholar
[6]Meyer, J. “Further Applications of Stochastic Dominance to Mutual Fund Performance.” Journal of Financial and Quantitative Analysis, Vol. 12 (06 1977), pp. 235–42.CrossRefGoogle Scholar
[7]Naisbitt, John. “Megatrends: New Directions Transforming Our Lives.” Unpublished manuscript (1982).Google Scholar
[8]Patricof, Alan J. “The New Role of Venture Capital.” Institutional Investor, (12 1979), pp. 125–127.Google Scholar
[9]Pratt, J. “Risk Aversion in the Small and in the Large.” Econometrica, Vol. 32 (01–04 1964), pp. 122–136.CrossRefGoogle Scholar
[10]Rotch, William. “The Pattern of Success in Venture Capital Financing.” Financial Analysts Journal, Vol. 25 (09–10 1969), pp. 141–147.Google Scholar
[11]Sharpe, W. F. “Mutual Fund Performance.” Journal of Business, Vol. 39 (01 1966), pp. 119–138.CrossRefGoogle Scholar
[12]“Statistics on Publicly-Held SBIC's and Venture Companies.” Venture Capital, selected issues from October 1973 through 03 1980.Google Scholar
[13]Arthur Wiesenberger and Co. Investment Companies. New York: Arthur Wiesenberger and Co., (1980).Google Scholar