Expected Returns - The 411 On Startups (tm)

What to Expect When You’re Expecting Venture Capital Returns

Jul

2015

One of the first things I did when I joined the venture asset class as a lowly institutional LP analyst in 2001 was to build the VC fund cashflow model. Just about every analyst who looks at fund investing has built one. You incorporate expected company returns, mortality rates, and fee structures to try to ...

A Simulation of Angel Investing, Part 2

May

2012

This is a follow-up to my post A simulation of angel investing. Several readers commented on Hacker News that my first stab at a simulation was misleading because it showed negative average returns for low deal sizes, when in fact expected returns should be not only positive but constant regardless of deal size. They are ...

A Simulation of Angel Investing

May

2012

In angel investing, it’s the extreme distribution of payoffs that keeps things interesting. If anything, it resembles buying a deep out-of-the-money call option, but with nonlinearity. If you win big you might find yourself in on the ground floor of the next Google or Facebook. That’s incredibly unlikely, but still possible. More likely, you’ll end ...

Kauffman Foundation Bashes VCs For Poor Performance, Urges LPs To Take Charge

May

2012

The Kauffman Foundation, which has ties to the venture industry, has issued a damning study of the business that addresses long-running concerns about poor performance and concludes that the limited partners who invest in funds have no one but themselves to blame. The report, “We Have Met The Enemy…And He Is Us,” draws on lessons ...

Study Indicates Follow-on Funding Gives Lower Returns for Angel Investors

Apr

2012

In 2007, Professor Rob Wiltbank reported in Returns to Angel Investors in Groups that angel investors made follow-on investment in about 30% of their invested companies. It was surprising for me to learn that follow-on investments correlated with lower returns, that is, angels that made follow-on angel investments saw returns of 1.4X their investment, while ...

The Venture Capital Math Problem

Apr

2009

This is a post by Fred Wilson of Union Square Ventures. It goes through some statistics on Venture investing and ROI to imply the VC returns model is broken. More interesting are the comments it inspired; those comments have some really good data, freely given.

The Portfolio Effect: Battery’s Tom Crotty on Why VCs Should Back at Least 25 Companies in Every Fund

Oct

2008

If you build a portfolio of less than 20 deals, and especially if you are an early-stage investor where the industry mortality rate is somewhere in the 50% range and maybe higher, you better be damn lucky on the winners and get more than one with strategic ‘exit’ premiums of 7x or more,’ he said. ...

Angel Investor and Angel Fund Returns

Sep

2008

Every year, angel investors and venture capital funds invest about the same amount of capital — around $25 billion in the US and $3 billion in Canada. When it comes to returns, there is a great deal of information available on venture capital funds, but almost no information on angel returns. Fortunately, the first large ...

SSRN-Whom You Know Matters: Venture Capital Networks and Investment Performance

Aug

2008

Many financial markets are characterized by strong relationships and networks, rather than arm’s-length, spot-market transactions. We examine the performance consequences of this organizational choice in the context of relationships established when VCs syndicate portfolio company investments. VC firms that enjoy more influential network positions have significantly better fund performance, as measured by the proportion of ...

SSRN-The Exit Rates of Liquidated Venture Capital Funds by Sami Torstila, Markus Laine

Aug

2008

Exit rates provide a simple yet practical measure for valuating and benchmarking the performance of venture capital funds. We create a sample of 138 liquidated U.S. venture capital funds and investigate the outcomes of their 4,549 portfolio companies. We study exit rates, proportions of different exit routes, and their determinants. The median fund in our ...