
Most venture capital funds lose money - taylorbuley
http://finance.fortune.cnn.com/2011/02/16/venture-capital-returns-more-in-short-term-less-in-long-term/
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dgabriel
I am hardly surprised that the ten year return rate is as miserable as it is.
Ten years ago, in 2000, we were in the midst of the tech bubble, and many
companies got funding that they should not have. It's like looking at the ten
year return rate on property purchased in Miami in 2006.

edit: pets.com evaporated 300 mil in less than a year in 2000, and that's just
one example.

~~~
meterplech
In general I am shocked whenever a single anecdote like this is reported as
the truth. They try to add some cachet by saying they looked at 1,300 firms,
but picking only one start date is awful.

I'd be really interested in average 10 year returns on VC from the past 10
years. I.e funds raised from 1990 to 2000. Obviously even more interesting
will be how the current funds do.

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secretasiandan
6th paragraph

"The median net return to VC fund investors has not been positive for any
vintage year since 1998."

I'm curious, did you read the article and miss all the talk about vintage
years? Or did you only skim it? Or did you only read the comment? Or did I
misinterpret your comment?

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meterplech
I may not have known what the terms meant, but I took that to mean 10 year
returns on funds. So, I thought it was only referring to funds started in
1998, 1999, and 2000. Still definitely not a overwhelming amount of data. I
forgot to mention the other years in my comment. However, the general idea of
the comment still holds- they took an exact bit of data, like 10 year returns
for the worst years of funds to determine that VCs aren't valuable. As has
already been commented, if you looked at the 15 or 20 year returns you will be
amazed in the other direction.

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asr
Yet another example of getting some things wrong in the article, and then some
things wrong in the title, to end up with a basically dishonest piece of
journalism.

The article is based off of the "Cambridge Associates LLC U.S. Venture Capital
Index." I see no reason to believe that measures the median venture fund--that
would be a dumb way to construct an index--the responsible way to create an
index is to weight by the size of the fund.

Second, as noted by dgabriel, the story draws its conclusion from the 10-year
return--if you look at the quarterly returns on page 6 of the report
([http://www.cambridgeassociates.com/pdf/Venture%20Capital%20I...](http://www.cambridgeassociates.com/pdf/Venture%20Capital%20Index.pdf))
you'll see the real story is "Venture Firms Lose Money from 2000-2002." Which
everyone already knows.

Really, really terrible work.

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secretasiandan
A) The quarterly pooled MEAN metric does not necessarily tell you how the
majority of venture firms perform over any sustained duration. Looking at the
MEDIAN vintage year performance on page 7 does (at least a better job of it).
From that, it appears most vintage years haven't made money since 1998.

B) We have data for vintage years, but not necessarily firms. I don't think
its a terrible generalization to say that the last 10 or 15 vintage years
represents VC firms now in business, else there are funds that have been open
for 15 years and I believe they usually have a fixed lifetime of less than
that.

C) Given points A and B, do you still believe they are drawing their
conclusion (and poorly so) only from 10 year returns?

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asr
Thanks for pointing out that interesting, and relevant, data (upvoted).

The problem with looking at negative median returns since 1999 is that from
1999-2002 this is just picking up the bubble, and as you point out many funds
from vintage years 2003-present are very much still in business, so a current
negative return for these vintages is not particularly meaningful. Unless the
authors have some methodology I'm not aware of to deal with the fact that
venture funds often don't carry companies at anywhere close to their current
value.

Finally, even if (B) were true, there's a huge difference between "Most
venture funds lose money" and "Most venture funds currently open have lost
money." While the first would make me worry about the business model, the
second wouldn't.

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ojbyrne
Its not clear to me whether those returns are total or annualized. If the
latter, the 15 and 20 year returns are eye-popping.

~~~
joshu
Annualized. If they were total, you'd be way better off with practically
anything else.

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muerdeme
There are good and bad VC's, and with funds lasting 10 years it takes a long
time to sort them out. It'll be interesting to see if the institutional money
really pulls out of the industry or if they start driving up the price of the
good VC's. Folks with solid track records might use this data to justify a
better deal than 2 and 20 with their LPs.

