Opportunity Cost of Capital for Venture Capital Investors and Entrepreneurs

@inproceedings{Kerins2003OpportunityCO,
  title={Opportunity Cost of Capital for Venture Capital Investors and Entrepreneurs},
  author={Francis J. Kerins and Janet Kiholm Smith and Richard Langham Smith},
  year={2003}
}
We use a database of recent high tech IPOs to estimate opportunity cost of capital for venture capital investors and entrepreneurs. Entrepreneurs face the risk-return tradeoff of the CAPM as the opportunity cost of holding a portfolio that necessarily is underdiversified. For early stage firms, we estimate the effects of underdiversification, industry, and financial maturity on opportunity cost. Assuming a one-year holding period, the entrepreneur's opportunity cost generally is two to four… CONTINUE READING

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