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Methodology
Cutting-Edge Statistical Techniques Plus the Most Complete Data

Based on our proprietary database of venture capital valuation events, the Sand Hill Index of Venture is the first index for this asset class that is built from the ground up—at the level of the individual venture-backed company. It is also built adhering the principles of modern index construction, to be continuously-invested and value-weighted,  and of course, free of bias, including survivor bias.

The data behind our index presently comprise 60,000 valuation events for 17,000 companies.  We use sophisticated and proven techniques to address the two central problems for building such an index – intermittent pricing of companies and the bias in shared information.

Recovering Monthly Prices
To address intermittent pricing, essentially to get from an occasional price to a monthly price series, we use an interpolation method similar to the one used to build repeat-sales indices for real estate, which faces a similar intermittent pricing challenge.  This approach has revolutionized the construction indices for nationwide and local housing prices, replacing tedious and noisy appraisals.

Eliminating Bias
Bias in reported valuations is addressed with techniques developed by economists over the last two decades.  These methods go deeper to exploit all available information about companies that have done even one round of fund raising, whether or not they report value when a round of funding is done.

Price interpolation and correction for selection bias—these two methods are applied together to produce the first unbiased, continuous index of value for the universe of venture companies from 1989 to the present.  The Sand Hill Index serves as the private company analog of a market-wide index such as the DJ Wilshire 5000.

*as of Q3 2005

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A Little About Our Data
We believe good analysis can only be based on good data. In addition to the standard industry sources of company-level data, Sand Hill conducts primary research on M&A, IPO, shut-down and funding events.
   We do not release or publish company level data in any form but use the data we collect to enhance our understanding of the aggregate and cross-sectional performance of the venture capital industry and to improve our models.
   To house our data we've custom-built a relational database that allows us to weigh each field so that we will use only what we consider to be the most reliable data to build our indices and produce our research.
   Our database provides a solid foundation for the highest quality research and metric production available.

Excerpted from the
Sand Hill Academic White Paper

"We obtain or estimate a value for every company in every month from its entry into the data to its exit or to the present, in the case of no exit. For exited companies that report value at every round, we use the post-money value of the round at the report date. Between report dates, we interpolate value for the company using an interpolation index, from the post-money value of the prior round to the pre-money value of the next round. For missing data—either missing valuations for known valuation events or for companies of unknown status—we use econometric methods to impute values."

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Illustrations are from historic stock certificates.

Data is the plural of anecdote