Risk and Reward in Venture Capital

Posted: 25 Jan 2012

See all articles by William Sahlman

William Sahlman

Harvard University - Business School (HBS)

Date Written: December 3, 2010

Abstract

This note describes the payoff structure of investment in individual venture capital-backed companies and in venture capital portfolios. Venture Capital investments are characterized by high failure rate (over 50%) and a small number of given successes (greater than 10% returns). As an asset, class, venture capital has produced high cyclical returns that mirror trends in capital markets and in markets for new technology. There is a large disparity in median and upper quantize performance. A small number of funds do well on a constant basis. Overall returns on venture capital have been low for the decade ending in 2009.

Learning Objective: The purpose of this note is to expose students to real data in payoffs for individual venture capital investment sand the portfolios across the past 30 years.

Suggested Citation

Sahlman, William, Risk and Reward in Venture Capital (December 3, 2010). Harvard Business School Entrepreneurial Management case no. 811-036, Available at SSRN: https://ssrn.com/abstract=1991934

William Sahlman (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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