Whenever we release data on VC fund performance, folks say "look at that, the median VC fund struggles to beat the S&P500".
...yes? Not sure why anyone should expect the 𝗺𝗲𝗱𝗶𝗮𝗻 𝗳𝘂𝗻𝗱 to outperform public markets?
Look at the data below for seed-stage companies. About 40-45% in any given cohort will make it to Series A.
Some will get bought at seed, yes. Others may become profitable businesses with no more VC funding which could return some dividends over time. There are some early wins.
But 50%+ are likely going to zero. Which means the funds that invested into them are going to see no money back.
Compound that round by round, add in all the liquidity challenges inherent in private companies, add in a dash of struggling startup macro environment - and returns are going to suffer!
I've not yet met a VC fund manager who pitches their LPs on the median return. Venture is about finding the outliers. The top 10% (or maybe 5%...or maybe 1%!) that will become generational companies.
Comparing the median VC fund to a broad public market index like the S&P has always struck me as odd. One is far riskier than the other and only outperforms in select cases - but the promise of that outperformance is real for the best managers.
Caveat - this does not imply I think VC funds or VC as an asset class should not be criticized. I think there are many worthy debates to be had about the way the asset class works today, how it selects and funds companies, all of that.
I just don't think median returns vs the S&P is the right critique.
#startups #venturecapital #VC #publicmarkets #fundreturns
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