Risk and return characteristics of venture capital-backed entrepreneurial companies

Valuations of entrepreneurial companies are only observedoccasionally, albeit more frequently for well-performing companies.Consequently, estimators of risk and return must correct for sampleselection to obtain consistent estimates. We develop a general model of dynamic sample selection and estimate it using data from venture capital investments in entrepreneurial companies. Our selection correction leads to markedly lower intercepts and higher estimates of risks compared to previous studies. The methodology is generally applicable to estimating risk and return in illiquid markets with endogenous trading.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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