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The Journal of Private Equity

The Journal of Private Equity

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Article

The Opportunity Cost of Venture Capital

Luis E. Pereiro
The Journal of Private Equity Fall 2015, 18 (4) 8-18; DOI: https://doi.org/10.3905/jpe.2015.18.4.008
Luis E. Pereiro
is a professor of corporate finance at Universidad Torcuato Di Tella in Buenos Aires, Argentina, and HEC Paris School of Management in France. lpereiro@utdt.edu
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Abstract

Using a new set of risk benchmarks, the authors estimate the opportunity cost of equity capital for entrepreneurs, limited partners, and general partners of venture capital funds. The figures turn out to be well below the internal rates of return (IRRs) customarily targeted in the private equity industry. Those venture capitalists who keep employing target IRRs to discount cash flows may thus be risking a free fall into a loser’s curse—the systematic bypassing of potentially profitable investments deals.

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The Journal of Private Equity: 18 (4)
The Journal of Private Equity
Vol. 18, Issue 4
Fall 2015
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The Opportunity Cost of Venture Capital
Luis E. Pereiro
The Journal of Private Equity Aug 2015, 18 (4) 8-18; DOI: 10.3905/jpe.2015.18.4.008

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The Opportunity Cost of Venture Capital
Luis E. Pereiro
The Journal of Private Equity Aug 2015, 18 (4) 8-18; DOI: 10.3905/jpe.2015.18.4.008
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  • Article
    • Abstract
    • THE VENTURE CAPITAL PRICING MODEL
    • THE COST OF CAPITAL FOR LIMITED PARTNERS
    • THE COST OF CAPITAL FOR GENERAL PARTNERS
    • THE COST OF CAPITAL FOR PARTIALLY DIVERSIFIED ENTREPRENEURS
    • THE COST OF CAPITAL FOR UNDIVERSIFIED ENTREPRENEURS
    • ARE TARGET IRRS “TOO HIGH”?
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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