Benchmarking Venture Investment and Korean Venture Capital Industry

Abstract

This paper studies the issues pertaining to the benchmarking and monitoring of the performance of private venture funds. In particular, this paper attempts to estimate expected return and associated risk involved in venture investment, along with the correlation with the comparable public market indices, which are key input in assessing the value of venture investment as an alternative asset class. In addition, relative benchmarks such as Quartile-IRR benchmark and public market equivalent IRR (PME-IRR) benchmark for different vintages are computed to examine the potential usefulness of such benchmarks in the Korean venture market. The data consist of 374 liquidated Korean venture funds collected for over the last two decades by the Korea Venture Investment Corporation. Despite the limited size of the data, the empirical results may shed some lights to sponsors like pension fund managers and fund of funds managers on how to interpret and monitor the performance of venture funds and the venture companies.