Replication data for: The Burden of the Nondiversifiable Risk of Entrepreneurship
Principal Investigator(s): View help for Principal Investigator(s) Robert E. Hall; Susan E. Woodward
Version: View help for Version V1
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Project Citation:
Hall, Robert E., and Woodward, Susan E. Replication data for: The Burden of the Nondiversifiable Risk of Entrepreneurship. Nashville, TN: American Economic Association [publisher], 2010. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-11. https://doi.org/10.3886/E112349V1
Project Description
Summary:
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Entrepreneurship is risky. We study the risk facing a well-documented and important class of entrepreneurs, those backed by venture capital. Using a
dynamic program, we calculate the certainty-equivalent of the difference
between the cash rewards that entrepreneurs actually received over the past 20 years and the cash that entrepreneurs would have received from a risk-free salaried job. The payoff to a venture-backed entrepreneur comprises a below-market salary and a share of the equity value of the company when it
goes public or is acquired. We find that the typical venture-backed entrepreneur received an average of $5.8 million in exit cash. Almost three-quarters of entrepreneurs receive nothing at exit and a few receive over a billion dollars. Because of the extreme dispersion of payoffs, an entrepreneur with a coefficient
of relative risk aversion of two places a certainty equivalent value only slightly greater than zero on the distribution of outcomes she faces at the time of her company's launch. (JEL G24, G32, L26, M13)
Scope of Project
JEL Classification:
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G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
L26 Entrepreneurship
M13 New Firms; Startups
G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
L26 Entrepreneurship
M13 New Firms; Startups
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