Life Cycle Cash Flows of Ventures

81 Pages Posted: 17 Aug 2020 Last revised: 28 Feb 2021

See all articles by Shumiao Ouyang

Shumiao Ouyang

Princeton University - Department of Economics

Jiaheng Yu

Massachusetts Institute of Technology (MIT)

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

Date Written: August 2020

Abstract

We estimate the collective return to all investors in ventures in our sample over their life cycle. The net present value per dollar invested in the first round of funding (NPV) is significantly positive on average but comes down after 1999. The structural break follows the passage of the National Securities Markets Improvement Act (NSMIA). We develop a model to understand the effects of increased supply of capital due to NSMIA. Consistent with the model’s predictions, after NSMIA, ventures have lower NPVs, founders give up a smaller fraction of ownership to more experienced VCs, but they continue to add value.

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Suggested Citation

Ouyang, Shumiao and Yu, Jiaheng and Jagannathan, Ravi, Life Cycle Cash Flows of Ventures (August 2020). NBER Working Paper No. w27690, Available at SSRN: https://ssrn.com/abstract=3675242

Shumiao Ouyang (Contact Author)

Princeton University - Department of Economics ( email )

Jiaheng Yu

Massachusetts Institute of Technology (MIT) ( email )

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Ravi Jagannathan

Northwestern University - Kellogg School of Management ( email )

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Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

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Indian School of Business (ISB), Hyderabad ( email )

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