Risk and Reward in Venture Capital Funds

Abstract

Using detailed data from Korea, free from the selection bias problem and providing industry codes for companies a venture capital (VC) fund invests in, this study conducts comprehensive analyses of performance and performance persistence of VC funds. We find significant differences between the results using a non-risk-adjusted and those using a risk-adjusted performance measure. Another notable finding is that government participation affects the risk-adjusted performance and cash inflows of venture capital funds. Furthermore, the persistence of performance is much weaker when we control risk of VC funds. In addition, we provide the evidence that the performance in a public market has a positive influence on the probability of raising subsequent venture capital funds.