VC performance is still bad, but help is on the way
Positive signs from the M&A market, and a new class of investable businesses (and off-ramps) emerges
latest VC fund performance data is still bad (and even slightly worse than expected)
normal valuation trends do not look like this
help is on the way: better than green shoots from M&A (with deal volume and multiples to boot)
a new class of investable companies emerges
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VC performance is still bad, but help is on the way (maybe)
AngelList released some venture fund performance data and itโs . . . not the best.
Just as a quick preface, the lack of any actual returns in the VC ecosystem (and the implications) has been covered to death, at this point. That means there are only a few genres of interesting observations to make:
(a) itโs getting better (or worse, I suppose); or
(b) hereโs a new and different thing to
make it better,
take advantage of the dislocation, and/or
change the approach going forward (e.g. innovative capital products, strategies, or insights-from-mistakes made)
Random Walk will also allow for the occasional debonkings of popular (but false) coping strategies, like โthe IPO market is closed.โ
This post will partially violate the interesting rule, but also fall into category (a) โitโs getting better (or worse, I suppose).โ
Throat clearing out of the way, on to the data.
The best-performing funds returned what now?
AngelList skews small and emerging, but it does have a lot of funds on its platform, and so it endeavored to benchmark fund performance, beginning with 2017 (โthe first year with more than 40 funds for our dataโ).
Behold, the โperformance:โ
Median TVPI (total value to paid-in capital) for the 2017 vintage is 3.57x, with 2.45x at the 25th percentile and 6.35x at the 75th percentile.
That comes out to a median IRR of just under 20%.
20% is actually pretty good, but the thing that jumps out is, of course, DPI or Distributions to Paid-in Capital (or the lack thereof). Itโs one thing to say that investments have appreciated because someone has assigned a higher valuation, but itโs quite another to realize that valuation with cold hard cash, aka distributions.
And when it comes to distributionsโactual, realized returnsโthe situation is quite grim, and even a bit grimmer than I expected.
For the 75th percentile of fund for the 2017 vintageโthe best performers, from the most-seasoned vintageโDPI is still only 0.64x. That means that while managers are marking investments as sextupled+, theyโve still only returned 64 cents on the dollar after seven years.
And, again, this is the best performing bunch (from the most-seasoned vintage)! Thatโs not very good, at all.
No real valuation trends look like this
Surely, some of that is just part of the waiting game that is ventureโhold periods are supposed to be long (especially if youโre starting early). But, eight years in, is definitely reaching the harvest period.
Again, itโs no secret what happened, although this visual a pretty fun reminder:
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