Yet, more importantly, there are the limited partners, the funds, the endowments, the foundations, the high net worth people, the family offices that invested in the venture capital funds. ~~Many of them are getting public and providing liquidity to both the VCs. That portfolio of startups that you invested in as a VC are maturing at the perfect time. ~~It is a great time to have been a venture capitalist and been investing five to 10 years ago. There’s a lot of companies getting bought. It’s reminding me of 1999 there’s IPOs every other day. I’m recording this in early 2021, and this is one of the hottest markets I’ve ever seen in my career.
~~Now also remember, we are in a super hot market right now. The fund returns with 10X or 15X all because of, or mostly because of that one investment. Those types of companies return their fund. So they know that two or three are going to power most of the returns of the entire portfolio because in the startup world the power law is, the big ones win big. They do big portfolios of startups and 20 to 100 investments in a given venture capital fund. It is really important to think about venture capital in the sense that the power law is really at work in venture capital investing. This translates into portfolio returns from 20% to 35% targeted IRRs.īefore we get into how these return expectations vary by stage, and how that impacts your startups’ valuation, let’s dig into an important part of how VCs construct their portfolios: VC Returns - Understanding the Power Law
Venture capital fund performance series#
Today, we’ll explore the question: what are your VC’s return expectations depending on the stage of investment? The TLDR seed investors shoot for a 100x return Series A investors need an investment to return 10x to 15x and later stage investors aim for 3x to 5x multiple of money. It is incredibly important that startup founders know what their VCs are going for so that they can be aligned and make smart decisions.
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