IRR is not a useful metric in venture until a fund is 4, 5, or 6 years old.
Been reading a number of stories about how IRR for venture funds raised in the last 2 years has gotten out to "hot start" or is "outpacing older vintages".
...well of course it is. But who cares?
IRR is not a good comparative measure early on specifically because it takes into account the value of time. So if a fresh fund makes an investment then has that portfolio company marked up in the span of a few months (not uncommon in this AI frenzy), bam, printing IRR.
But look at 2021. Lots of funds started that year and saw explosive IRR growth out of the gate. And now...struggling. Holding lots of companies whose last major uptick was 3-4 years ago and whose stale marks are starting to drag on the same IRR metric that looked so rosy back when.
Are we headed for the same future in this vintage? I believe far more in the AI transformation than in the NFT craze, but no doubt there are some wild overvaluations happening.
History may not repeat, but it tends to rhyme.
More data on next week in our Q1 2026 Fund Performance report, give a shout in the comments for a link to the waitlist!
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