Asset Pricing Robustness in Venture Capital

Ioannis Michopoulos, Olivier Scaillet and Nikolas Topaloglou
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Ioannis Michopoulos: Stout Risius Ross, LLC
Nikolas Topaloglou: Athens University of Economics and Business

No 26-26, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We provide robust evidence that traditional asset pricing models fail to incorporate key idiosyncratic properties of Venture Capital (VC) contracts under no proper risk-adjustment, leading to significant pricing heterogeneity relative to market participants. An option pricing analysis of 2,056 US VC-backed companies with 9,188 deals confirms that holding period and equity volatility are primary factors optimizing investor risk and return metrics, and minimizing valuation heterogeneity regardless of deal or contracting characteristics. We provide a security-return design evaluation framework leading to robust value attribution between investors, founders, and employees, and harmonized risk bifurcation across securities with asymmetric payoff properties. We link standard deviation of assets to key VC contract properties and leverage structural risk signals of VC contracts in optimizing endogenous derivation of investor risk premiums. Our results are robust and scalable to the broader VC universe.

Keywords: Venture capital; Contracts; Capital structure; Value of firm; Asset pricing (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2026-03
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2626

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