![]() However, the average data belies a deeper truth which is that average VC (out)performance is driven by a very small subset of Venture funds – namely the top-quartile of managers.ĭata suggests that the best venture capital funds have a high chance of continuing to outperform the markets by a lot. As we can see, overall, VC funds have beaten the public markets quite consistently. The chart below shows the performance of Venture Capital (VC) funds over various periods versus a public market benchmark (mPME). Venture capital funds have consistently outperformance the markets. Diversification across vintages and a core set of managers (combined with industry-insider knowledge) is a tangible benefit that a Venture Capital fund-of-funds (FoF) can deliver. The best VC funds are difficult to access (scarcity), but accessing them is a winning strategy.Ĭoncentrated Diversification – Even the best Venture funds can have weaker vintages given the idiosyncratic nature of venture…or just because they find themselves overpaying during boom cycles. Persistence – The best Venture funds have a high probability of continuing to be the best. In other words, if you don’t invest with the best Venture funds, you’ll probably underperform the market. ![]() Performance – Venture funds have beaten the public markets consistently.ĭispersion – The best Venture funds perform extraordinarily well, but the rest don’t. ![]() Our key findings can be summarised across the following four areas: Ii) industry reports and analysis from Cambridge Associates (‘CA’), the industry reference for VC fund performance, which has surveyed more than 2,000 VC funds since 1995. I) a series of papers written by University of Chicago’s Steven Kaplan (together with other academics at Wharton and Oxford), based on data from more than 1,400 VC funds, with vintages starting in 1984 (‘the Kaplan studies’), and The analysis below distills some of the key findings apparent in both academic and industry studies on VC, notably: Industry data provides strong support for a multi-vintage approach to VC investments, concentrated on top-tier VC funds. Top-tier VCs have a high chance of remaining top-tier in their successor fund. Top-tier VCs have out-performed the markets by A LOT. Venture Capital (VC) funds have consistently outperformed the market. WHY INVEST IN A VENTURE CAPITAL FUND-OF-FUNDSĪuthors: Salman Farmanfarmaian and Richard Rimer
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