Cost of Capital for Venture Capitalists and ...（资本成本的风险资本家和u2026）.pdfVIP

Cost of Capital for Venture Capitalists and Underdiversified Entrepreneurs Frank Kerins Washington State University Janet Kiholm Smith Department of Economics Claremont McKenna College Richard Smith Peter F. Drucker Graduate School of Management Claremont Graduate University January 2002 We use the CAPM and a database of recent high-technology IPOs to estimate opportunity cost of capital for venture capital investors and entrepreneurs. The entrepreneur faces the risk-return tradeoff of the CAPM as the opportunity cost of holding a portfolio that necessarily is underdiversified. We model the entrepreneur’s opportunity cost by assuming the venture financial claim and a market index comprise the entrepreneur’s portfolio. We use the database to estimate total risk and correlation with the market and to examine how these estimates and opportunity cost of capital vary with underdiversification and by industry and maturity of early-stage companies. Equity of newly public, high-technology firms generally is more than five times as risky as the market and correlations of returns with the market returns generally are below 0.2. Assuming reasonable market parameters and reasonable levels of underdiversification, the entrepreneur’s opportunity cost is more than twice that of a well-diversified investor. Contact Information: Ric