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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Empirical Evidence of the Risk and Returns of Venture Capital Investments in Swiss Portfolio Firms |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 75 |
| Date | 2016 |
| Abstract Text | In the light of the "Zukunftsfond Schweiz"—a soon-to-be implemented parliamentary initiative encouraging Swiss pension fund managers to increase their allocations into Swiss Venture Capital (VC) investment—this paper provides the first study from returns of venture capital investments in Swiss portfolio firms. This paper analyzes 91 venture capital investments in Swiss portfolio firms from a high-quality dataset covering over 30,000 global venture capital investments between 1980 and 2009. The data includes all monthly cash flows between venture capital funds and portfolio firms, internal rates of return and investment multiples. Means, medians, and different percentiles of the internal rate of return (IRR) and the Total Value Paid In multiple (TVPI) are analyzed for the overall sample and across industry class, investment stage, status of realization of the investment and type of exit. The overall sample of investments has an attractive mean IRR of 65%, however, the 3% median IRR indicates that the mean is heavily influenced by tail events, which are as high as 1673%. Across industry classes, the Consumer Industry has the highest mean IRR (390%) followed by Health & Life Sciences (72%). Across investment stages, the Early stage has the highest mean IRR (111%), however, looking at the medians the Later stage presents the highest returns with a median IRR of 15%. Investments exited through an IPO have a mean IRR of 394%, i.e., more than double the mean IRR from investments exited through a direct sale (185%). The median IRR for investments exited through an IPO remains very high at 318% indicating that the majority of investments that are exited through an IPO have very high returns. Large standard deviations imply means in the sample are often not statistically different from zero---an issue common to returns presented in other papers as well, e.g. Cochrane (2005); Korteweg and Sorensen (2010). Overall, the existence of few investments driving up mean returns and numerous investments yielding low or negative-returns, suggests the necessity of smart money to profitably allocate funds within the venture capital asset class. |
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