Lifting The Veil On VC Returns

from the about-what-you'd-expect dept

For the last year there have been a number of debates (mostly in the pages of the San Jose Mercury News) over whether or not public organizations who invest money in venture capital funds should be required to reveal the performance of those funds. VCs like to keep that info secret, claiming that it’s far from standard and these are long term funds – so short term results aren’t only useless, they may be misleading. That debate may be becoming moot as more public organizations agree to release the data. The latest is the University of Michigan who released fairly complete data on fund performance, including a number of top name VC firms. The results are almost exactly what you’d expect. Funds from the mid-nineties did amazingly well. Recent funds are all losing money. The problem, of course, is that it’s way too early to judge a recent fund. Most of them are still a ways from completion. As they point out, one of KP’s recent funds is showing a return of -19%, which is almost entirely due to management fees. If they have one homerun out of those investments (for example, should Google go public soon…), those results will be very different. I have no problem with this info being released, so long as people understand what the numbers mean. If they start misinterpreting the numbers it will hurt the entire startup business, by forcing VCs to make a much shorter term view of their investments. I think they’re already under too much pressure to invest for short term gains instead of long term deals.

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Comments on “Lifting The Veil On VC Returns”

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clouser says:

vc returns

I super agree with your last sentence. Even ten year funds (the standard now) may be too short (with a three year investment period and five year harvest period); in fact, there may be a case for fifteen year funds in some sectors such as biotechnology, energy and education (with a five year investment period and eight year harvest period). The worse thing that could happen is to compress the cycle.

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