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Chapter 10. Venture Capital Funds > The Return on Venture Capital Funds

The Return on Venture Capital Funds

The large investments made in venture capital funds over the last decades resulted from a change in institutional investors' estimation of the returns and risks involved in venture capital. As a result, more resources were directed to this field.

The returns demonstrated by the venture capital industry are characterized by considerable volatility. As described previously in this chapter, the most conspicuous phenomenon in the history of the fund industry is the inverse relation between the funds' returns and the amount of money invested in them. Periods characterized by a relative shortage of capital for funds, and hence to companies, are also characterized by the highest returns. Empirical evidence points to a positive connection between the pace of investments in the field and the value of companies in the investment rounds, and hence reduced returns over time.


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