Risk and Return

I caught the following on Fred Wilson’s “A VC” blog the other day and thought it was worth directing to.

Fred Wilson — for those of you who don’t know — is a principal of the venture capital fund Union Square Ventures, a NYC based early stage VC. Fred’s Union Square Ventures is widely regarded as one of the Top Venture Capital Firms in the country.

His post is about how to look at the correlation of risk/return and the relationship between the two. There is a formula (capital asset pricing model) out there that both early stage and expansion stage businesses should try to understand, if they don’t already. And that is:

Expected Return On An Asset = Risk Free Rate + Beta (Expect Market Return – Risk Free Rate)

See wikipedia for more info on the formula.

I urge all of you to check out Fred’s post on Risk and Return and browse through his blog in general. here is some really valuable stuff in there.