Private Equity Returns: An Empirical Examination Of The Exit of Venture-Backed Companies

Sanjiv R. Das, Murali Jagannathan, and Atulya Sarin

In this paper we examine 52,322 financing rounds in 23,208 unique firms, over the period 1980 through 2000 by venture and buyouts funds and estimate the probability of exit, time to exit, exit multiples and the expected gains from private equity investments. The expected multiple (after accounting for dilution and the probability of exit) ranges from a low of 1.12 for late-stage firms to a high of 5.12 for firms financed in their early stages. We find that the gains from venture-backed investments depend upon the industry, the stage of the firm being financed, the valuation at the time of financing, and the prevailing market sentiment. Our study is a first step in understanding the risk premium required for the valuation of private equity investments.