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Article

The Venture Capital Premium: A New Approach

Luis E. Pereiro
The Journal of Private Equity Summer 2015, 18 (3) 7-18; DOI: https://doi.org/10.3905/jpe.2015.18.3.007
Luis E. Pereiro
is a professor of corporate finance at HEC Paris School of Management and Universidad Torcuato Di Tella in Buenos Aires, Argentina.
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  • For correspondence: lpereiro@utdt.edu
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Abstract

We introduce a novel method to estimate the risk premium that investors should demand on top of public equity’s return to be properly compensated for the peculiar hazards of investing in venture capital. Unlike existing CAPM-based methods, our benchmarks are based upon direct measures of the factors that affect the value of venture capital portfolios—i.e., illiquidity, hazard of failure and control; being, at the same time, clear of the confounding effects of superior fund management. Our method is an empirically grounded alternative to the rules of thumb employed by institutional investors and fund managers when defining target returns on venture capital.

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The Journal of Private Equity: 18 (3)
The Journal of Private Equity
Vol. 18, Issue 3
Summer 2015
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The Venture Capital Premium: A New Approach
Luis E. Pereiro
The Journal of Private Equity May 2015, 18 (3) 7-18; DOI: 10.3905/jpe.2015.18.3.007

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The Venture Capital Premium: A New Approach
Luis E. Pereiro
The Journal of Private Equity May 2015, 18 (3) 7-18; DOI: 10.3905/jpe.2015.18.3.007
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  • Article
    • Abstract
    • DRIVERS OF THE VENTURE CAPITAL PREMIUM
    • TRANSFORMING EQUITY DISCOUNTS INTO RISK PREMIUMS
    • ASSESSING VENTURE CAPITAL PERFORMANCE
    • APPENDIX A
    • APPENDIX B
    • ENDNOTES
    • REFERENCES
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  • Editor’s Letter
  • Editor’s Letter
  • Profitability Analysis of Select Private Equity Funds in India
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