The size of venture capital and private equity fund portfolios

Gennaro Bernile, Douglas Cumming, Evgeny Lyandres

Research output: Contribution to journalArticle

43 Scopus citations

Abstract

We propose a model that examines the optimal size of venture capital and private equity fund portfolios. The relationship between a VC and entrepreneurs is characterized by double-sided moral hazard, which causes the VC to trade off larger portfolios against lower values of portfolio companies. We analyze the structural relations between the VC's optimal portfolio structure and entrepreneurs' and VC's productivities, their disutilities of effort, the value of a successful project, and the required initial investment in a venture. We also test the model's predictions using a small proprietary dataset collected through a survey targeted to VC and private equity funds worldwide.

Original languageEnglish (US)
Pages (from-to)564-590
Number of pages27
JournalJournal of Corporate Finance
Volume13
Issue number4
DOIs
StatePublished - Sep 1 2007

Keywords

  • Fund portfolio
  • G24
  • Private equity
  • Venture capital

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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