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Simulating the Effects of Fund Valuation Policies on the Measurement of Risk in Venture Capital

Tom Grossi
The Journal of Private Equity
Vol. 10, No. 1 (Winter 2006), pp. 49-60
Stable URL: http://www.jstor.org/stable/43503493
Page Count: 12
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Simulating the Effects of Fund Valuation Policies on the Measurement of Risk in Venture Capital
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Abstract

The common venture capital adage that there is "too much money chasing too few good deals" is in essence an indirect criticism that limited partners are not demanding sufficient risk premia from their venture portfolios. But the lack of objective, regular pricing data for venture fund assets makes this a difficult charge to evaluate even with the benefit of historical hindsight. How risky is a well diversified portfolio of venture funds and what kind of mean returns should LPs demand? This article explores that question indirectly by using computer simulations to estimate how much underlying asset risk may be masked by venture firms' portfolio valuation policies.

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