VC Fund Performance - Some History
I've had my head down in venture fund performance data for the past week. I love data. And so I thought I'd share some of it with you.
This is Venture Economics data. It shows money out over money in; distributions over paid in capital in the vernacular of venture fund performance wonks. I decided to stop at vintage year 1997, because I only want to focus on fully distributed funds and most venture funds have a 10 year life. I recognize that the data gets ugly a few years later but I don't want to focus on that just yet. I plan on doing a series of posts on this topic.
There are several things that are interesting to me in this chart. First, like all asset classes, the early years of VC were the best. That's when the market was inefficient and there was more demand for venture than supply. By the early 80s, the market stabilized and so did fund performance. For most of the 80s and 90s, the best funds (top quartile) paid out between 2x and 3x the paid in capital. The median fund paid out between 1x and 2x. The best funds really started to outperform significantly in the 90s when they started paying out 3x and up to 5x in the 1996 vintage year (the best year for venture since the very early days).
But the most amazing thing is the numbers for the top fund of the vintage. You can really hit it out of the park in the venture capital business. The very best funds of every vintage generally pay out at least 5x and sometimes more than 10x.
Like all asset classes, venture is all about manager selection and timing.
Next up, some data on the bad years (1999 to 2003).