Deng, Guanrou; Fiaschetti, Maurizio; Mazzarisi, Piero; Medda, Francesca; (2025) Optimizing investment period length and strategies for later stage venture capital staged financing portfolio. The European Journal of Finance , 31 (12) pp. 1576-1598. 10.1080/1351847x.2025.2532548.

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Abstract

In this paper, we analyze the investment and exit decisions in late-stage Venture Capital (VC) rounds of financing portfolios. We utilize a stochastic programming framework to minimize the investment period and find the optimal investment strategy for the VC portfolio under a predefined payoff. Validation of the model is conducted using the US later stage rounds of financing deals from PitchBook. Numerical results of the model reveal an ‘S’-shaped relationship between the portfolio’s payoff and investment period length, demonstrating the importance of timely termination for maximizing returns. Furthermore, a longer period with stricter exit multiples leads to a higher DPI payoff due to increased selectivity. However, excessively high exit multiples may reduce exits, hampering the portfolio’s overall payoff. Finally, portfolios with positive correlation perform better than the uncorrelated ones. These findings shed light on VC portfolio dynamics, providing insights for informed decision-making in staged financing investments.

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