Abstract
We study the relationship between buyout and venture capital (VC) funds’ returns, and more typically available proxies—exits via M&A or IPO. We further explore the effects of filters on the selection of M&As and IPOs (to emphasize successes), on the relationship. We show that some of these filters can reduce the count of exits by as much as 80% without significantly improving the correlation between exits and fund returns. We also show that for venture capital funds, counting acquisitions that are at least twice the amount of funding raised results in the best correlation between exits via an acquisition and fund returns. Finally, when the sample comprises young startups – that are perhaps not yet ready for any form of exit – follow-on funding, employment, website ranking, and patent activity can be used as proxies for exits in place of IPOs or acquisitions.
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