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A principle-agent approach to understanding the net asset value in VC

European Business student Robert Blotevogel on the role of the net asset value in the venture capital industry and how GPs use it as a strategic tool to further their own interests.

This dissertation explores the net asset value and its role in the venture capital industry. Given the special relationship between fund managers and fund investors, the net asset value transforms into an important signal of reputation. This creates a large incentive for fund managers to manipulate the level of the net asset value in order to be perceived as reputable.

A particular attractive approach to this end is appreciating the value of companies held in the fund’s portfolio. This dissertation proceeds by testing empirically to what extent fund managers’ behaviour in valuing companies is influenced by the relationship with their investors. Results confirm the hypothesis that GPs use the net asset value as a strategic tool to further their own interests. A correct appraisal of the net asset value must therefore take the fund managers’ relationship with the investors and the factors shaping this relationship into account.

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Dissertation written by BA (Hons) European Business student Robert Blotevogel, whose research in 2004/2005 was facilitated by the European Investment Fund. Further information on EIF activities is available from its website at www.eif.org