Money chasing deals? The impact of fund inflows on private equity valuation

We show that in#ows of capital into venture funds increase the valuation of these funds’ new investments. This e!ect is robust to (i) controlling for "rm characteristics and public market valuations, (ii) examining "rst di!erences, and (iii) using in#ows into leveraged buyout funds as an instrumental variable. Interaction terms suggest that the impact of venture capital in#ows on prices is greatest in states with the most venture capital activity. Changes in valuations do not appear related to the ultimate success of these "rms. The "ndings are consistent with competition for a limited number of attractive investments being responsible for rising prices. ( 2000 Elsevier Science S.A. All rights reserved. JEL classixcation: G24; G12

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