VC Returns by Stage
Warning: Preliminary Dissertation Results Below
My work on VC risk and return currently focuses on fitting a mixture model to the selection-corrected round-to-round returns data. This model can incorporate non-normality, skewness, kurtosis and outliers. Recently, I introduced lagged capital stock into the mixing probabilities through a multinomial logit model because analysis of the full model on “small” and “large” firms illustrated significant differences in results across firm size. With a continuous variable like capital stock, I can produce the estimated mixture pdf for a wide range of entrepreneurial firm sizes. The video below shows the progression of the selection and endogeneity-corrected (they are different!) mixture pdf.
[vimeo]http://www.vimeo.com/6393464[/vimeo]
The most dramatic change as firm size increases is in the right tail: larger firms have significantly more mass in the middle of the distribution. The underlying regimes match a world of “Losers,” “Winners” and “Break Even” as seen in the figure below.
3-regime VC returns
I have discovered that incorporating lagged capital stock into the mixing probability helps to separate the individual regimes. I will be posting some more information about my results later in the week.
Michael,
Where did you get the data for the 3-regime VC returns?
I use the VentureSource database.