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Journal of Corporate Finance Vol. 13 No. 4 2007

The size of venture capital and private equity fund portfolios

Gennaro Bernile1; Douglas J. Cumming2; Evgeny Lyandres3,4,5

1 University of Miami · 2 York University · 3 Reichman University · 4 Rice University · 5 Boston University

open access

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.

DOI
10.1016/j.jcorpfin.2007.04.004
Volume
13
Issue
4
Pages
564-590
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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