Venture Capital Funds Management: Portfolio Selection, Operation, and Control

A two-phase model for venture capital portfolio selection and management is presented. The portfolio selection phase of the model, based on data collected in a 1974 study of 140 venture capital firms and 368 venture capital investments, permits the computation of an investment multiple and a target rate of return, both of which are adjusted for two types of risk. These values can be used to measure the profitability of a potential venture capital investment and evaluate its acceptability for inclusion in the venture capital portfolio. The second phase of the model builds on the first to develop a managerial methodology for assessing the progress of venture capital funds performance relative to stated multi-goals and for identifying sources of performance failure.