What does "good" look like for VC funds 3 years in?
Turns out the answer is 𝗵𝗶𝗴𝗵𝗹𝘆 𝗱𝗲𝗽𝗲𝗻𝗱𝗲𝗻𝘁 on the vintage year.
I've been spending a lot of time lately with Limited Partners (LPs) that invest into venture funds, specifically emerging managers. One of the clear findings from our conversations is that while more data is always useful, judging venture funds after 3 or 4 years is exceedingly difficult.
Solution seems pretty easy, right? Just don't judge performance until year 6 or 7 or...10.
But of course it's not that simple. Many venture managers will be considering raising their next fund around the 3 year mark (although maybe these days that's closer to 4 years). So the performance data after 12 quarters is scrutinized closely.
Here we layer in a couple other considerations.
The LP is likely invested into multiple funds, both in the same vintage and across vintage years.
"Good" performance, as shown by the chart below, can be thought of as relative to the other venture funds on offer OR it can be a hypothetical absolute (say 3x DPI, in the end).
Data below shows good / better / best performance for VC funds on Net TVPI after 3 years.
Good = 75th percentile in black, better = 90th percentile in orange, best = 95th percentile in green.
In some vintages, the gap between 95th and 90th is much larger than the gap between 75th and 90th.
In others, all three marks are tightly packed.
It's clearly difficult to perform radically differently than the rest of the vintage. VCs investing at the peak of 2021 were likely to make some bad calls no matter their strategy or diligence.
Such a clear illustration of the importance of vintage diversification - on the LP side, obviously, but also for a VC manager 𝘄𝗶𝘁𝗵𝗶𝗻 𝗮 𝘀𝗶𝗻𝗴𝗹𝗲 𝗳𝘂𝗻𝗱. Investing everything you have in a 6 month period is...risky.
Lots more performance data and commentary coming soon in our VC Fund Performance Report for Q1 2025. Join the waitlist here: https://lnkd.in/gQuEudja
#VC #VCfund #TVPI #fundperformance
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