Quantifying Value Creation in Venture Capital: Challenges and Approaches
Advisor: Dr. Sarah Theinert (UVC Partners)
Start: ASAP
Background:
The concept of value creation has been a cornerstone in Private Equity (PE), where majority stakes allow investors to directly influence portfolio companies' strategic, operational, and financial outcomes. However, as the asset class of Venture Capital (VC) evolves, value creation is increasingly recognized as a critical driver of success, yet remains more complex to measure. Unlike PE, where majority ownership facilitates direct influence, VC investors typically hold minority stakes (often 10-20%), making it challenging to attribute value creation to a single fund's involvement.
Research Objective:
This thesis aims to explore and evaluate methodologies for measuring the direct and indirect value creation of VC funds in portfolio companies. The research will address how VC funds can quantify their influence on startup success despite their minority ownership, limited control, and the broader ecosystem in which startups operate.
Key Questions:
- What are the existing frameworks and metrics used to measure value creation in PE, and how can they be adapted for VC?
- How can VC firms demonstrate and quantify their unique contributions to a startup’s success (e.g., through strategic guidance, network effects, or operational support)?
- What are the challenges in isolating the impact of one VC fund versus other factors, such as co-investors, market conditions, or founder capabilities?
Methodology:
- Literature Review: A systematic review of existing academic and industry literature on value creation in both PE and VC contexts, identifying transferable frameworks and gaps in research.
- Quantitative Analysis: Empirical analysis of data from VC-backed startups to investigate correlations between specific VC fund interventions and measurable outcomes, such as revenue growth, market traction, or successful exits.
Literature:
- Biesinger, M., Bircan, Ç., & Ljungqvist, A. (2020). Value creation in private equity. Working Paper.
- Kaplan, S. N., & Schoar, A. (2005). Private equity performance: Returns, persistence, and capital flows. The Journal of Finance, 60(4), 1791–1823.
- Shapiro, R. J., & Pham, N. D. (2008). The role of private equity in U.S. capital markets. Global Insight Research Report.
- Loos, N. (2005). Value creation in leveraged buyouts: Analysis of factors driving private equity investment success. Doctoral Dissertation, University of St. Gallen.
- Acharya, V., Gottschalg, O., Hahn, M., & Kehoe, C. (2013). Corporate governance and value creation: Evidence from private equity. The Review of Financial Studies, 26(2), 368–402.
- Guo, S., Hotchkiss, E. S., & Song, W. (2011). Do buyouts (still) create value? The Journal of Finance, 66(2), 479–517.
- Harris, R. S., Jenkinson, T., & Kaplan, S. N. (2014). Private equity performance: What do we know? The Journal of Finance, 69(5), 1851–1882.
- Rossi, M., & Martini, E. (2019). Venture capitalists and value creation: The role of informal investors in the growth of smaller European firms. International Journal of Globalisation and Small Business, 10(3), 233–253.
- Gornall, W., & Strebulaev, I. A. (2020). Squaring venture capital valuations with reality. Journal of Financial Economics, 135(1), 120–143.
- Chemmanur, T. J., Loutskina, E., & Tian, X. (2014). Corporate venture capital, value creation, and innovation. The Review of Financial Studies, 27(8), 2434–2473.