Over the course of the last week, Fred Wilson has been writing about "Venture Fund Economics" at the newly-redesigned AVC. Fred has tackled topics like how venture capitalists are measured, the impact of management fees and carry on net returns, and the impact of big winners on venture returns. What's more, Fred has done the unthinkable -- he has described venture economics in the context of his own fund's specific economic terms. While he hasn't posted the economic performance of his fund to date (that is probably more naked than even Fred is willing to get), he has posted the model he and his partner Brad built when assessing the attractiveness of raising a hundred million dollar fund. The model is fascinating and brings to light the challenges venture funds face to achieve index returns, let alone the outsized returns associated with top tier venture firms. (Great stuff, Fred!)
Given the challenges faced by venture investors to drive market returns, one reasonably might ask the question, "why do limited partners continue to flock to the asset class?" Who better to answer that question than a bona fide Limited Partner. Enter Chris Douvos. Chris is the co-head of private equity investing for TIFF (The Investment Fund for Foundations). Before that he was with the Princeton Investment Company. Chris is a wildly smart, experienced investor who I always love chatting with. Give one read of his new blog and you'll understand why. In the course of discussing the intricacies of the LP business, Chris makes analogies to baseball, the lottery, greek tragedy and uses classic Chris words and phrases like "horseplay," "impish," "hotties," "livin' la vida loca!" and "Caliente!" Chris's blog is just plain fun to read. And that is saying a whole lot when you consider that Chris is talking about investing in VC and PE firms -- not exactly scintillating material by its nature.
Interestingly, in one of his first posts, like Fred, Chris addresses the challenge of venture economics. Only instead of discussing venture fund economics in the context of a $100M fund, Chris talks about the more daunting $500M fund (Chris prefers the smaller funds -- he says he likes being "long idiosyncrasy and short momentum"). According to Chris's math, a $500M fund needs to create between $12B and $17B in company market capitalization in order to deliver a 3X return (the bar Fred set for himself as well). In Chris's words:
"Here's where it gets dicey for the masses, though (and I'll make some gross simplifying assumptions): if you're an LP and investing in an run-of-the-mill $500 million fund hoping to get a 3x net return, that fund has to generate $1.75 billion in returns ($1.25B in profit less 20% carry equals two turns of profit). Of course, that's just the capital that accrues to the firm's ownership stake. Since a lot of firms end up owning only 10-15% of their companies at exit, you've typically got to gross the $1.75 billion up by a factor of between 6.67 and 10. That suggests that those firms need to create between $12 and $17 billion of market cap just to get a 3x fund-level net return to their LPs. Caliente!
Let's unpack that box a bit more: at the $15 billion midpoint of the exit range above, a firm that invests in 25 early-stage companies will have to get, on average, $600 million exit valuations for each and every one of them. That's a pretty daunting number when you consider that the typical M&A valuation has hovered in the high double-digit millions for quite some time."
It is a daunting task for sure. To deliver those returns it almost assuredly requires a huge hit or two in your portfolio. So does that mean VCs need to swing for the fences? I don't think so. As Fred rightfully points out, "There are hitters in baseball, the best hitters in fact, that hit balls out of the park when they are just trying to make good contact." (Fred and Chris share a love of the baseball analogy). The power hitters are the guys Chris is trying to back. And those are the guys who will deliver the best returns.
For more great insights into the VC and Private Equity markets, you should definitely check out Chris Douvos's blog. This is stuff no one has blogged about before, and certainly not in such an entertaining way -- another fantastic addition to the blogosphere.
I red Chris's blog. He offers some valuable suggestions. What is the best way for VC to stop digging a hole, in terms of when they are involved in the financing of a faltering company? As a buiness coach, I teach my clients to seek the guidance of a battle tested mentor. We also teach people to tap into community knowledge and get involved with a mastermind group... http://www.readtheanswer.com/index.php?RTA=web2
Posted by: https://me.yahoo.com/a/hUrZaasa0ZB6ieFQ6D.6aHcLaNVP4Lzfpg--#0eb09 | 08/18/2008 at 09:28 AM
Gucci is a famous brand in the world , and is originate from Italy and create by Guccio Gucci. He is a famous designer. His products are popular with most of people . His design are originality and natural. Gucci bags and Gucci outlet are also popular and elegant. You can search for our website : http://www.gucciusaoutlet.com.
Posted by: Gucci handbags | 08/09/2010 at 08:21 PM
I was reading your course titles and thought how ironic your interest in you said,and I have some ideas about it,and then you link my name ,I will tell you the detail.Thanks a lot for the wonderful information.I will follow you the posts you write in the future.
Posted by: Retro Jordan | 10/09/2010 at 02:36 AM
Thanks for the sharing of those article! That will be helpful.
Posted by: ugg store | 10/30/2010 at 03:01 AM
I thought it was enjoyable at best.*
Posted by: coach outlet | 11/01/2010 at 10:43 PM
another fantastic addition to the blogosphere.
Posted by: air jordan 2 | 11/01/2010 at 11:46 PM
My hometown is in China, and welcome to China travel.
Posted by: fake christian louboutin | 11/02/2010 at 12:30 AM
Speech is a mirror of the soul; as a man speaks, so is he.Your speech is very nice.
Posted by: ugg outlet | 11/06/2010 at 01:16 AM
You are mighty.Nobody loves like you, Lord. You are a mighty God. You are mighty.
Posted by: Supra Shoes | 11/08/2010 at 12:27 AM
*_* What a Nice Post! I Like It So Much!!
Posted by: buy taobao | 11/12/2010 at 11:29 PM
*Good health, like air, is essential to human beings!*
Posted by: air jordan | 11/15/2010 at 07:28 PM
Thanks very informative post, love you'r blog, bye.
Posted by: poker en ligne | 11/22/2010 at 02:24 AM
Il est étonnant à quel point le mot-clé puissante queue longue, c'est quand il vient à l'immobilier. Via un logiciel de suivi, il est idéal pour regarder comment mon blog se trouve sur l'internet basé sur diverses choses, comme des rues, des quartiers, des profils d'entreprise, études de marché, ect dans mon domaine de Hopkinton Massachusetts.
Posted by: new jordans 2010 | 12/20/2010 at 07:41 PM
ost as usual. Thanks!!!
Posted by: usa online casino | 12/28/2010 at 03:57 AM
Everything can be taken from a man but one thing; the freedom to choose his attitude in any given set of circumstances.
Posted by: coach outlet | 01/07/2011 at 04:52 PM
Great guy, great thanks once again to enter and maintain this publication in the next one of these good jobs.
Posted by: Cheap Jordan Shoes | 01/12/2011 at 06:44 PM
Of course, covering up was not an option.I choose the positive side of life
Posted by: supra shoe | 01/17/2011 at 12:39 AM
DEKARONデカロン-RMT of a site.rmt ff11 The cost of a site would be how much it costs to run it. The worth of a site is determined mainly by how much revenue the site is bringing in.信長の野望Online RMT Other factors would include how much traffic the site is bringing in on a monthly basis, email subscribers if any,アラド戦記 rmt rmt ドラゴンネスト メイプルストーリー RMT アラド戦記 rmt rmt アラド rmt ff11 信長の野望Online RMT 大航海時代-RMT DEKARONデカロン-RMT
Posted by: DEKARONデカロン-RMT | 01/19/2011 at 06:46 PM
DEKARONデカロン-RMT of a site.rmt ff11 The cost of a site would be how much it costs to run it. The worth of a site is determined mainly by how much revenue the site is bringing in.信長の野望Online RMT Other factors would include how much traffic the site is bringing in on a monthly basis, email subscribers if any,アラド戦記 rmt rmt ドラゴンネスト メイプルストーリー RMT アラド戦記 rmt rmt アラド rmt ff11 信長の野望Online RMT 大航海時代-RMT DEKARONデカロン-RMT
Posted by: DEKARONデカロン-RMT | 01/19/2011 at 06:53 PM
SOSOSO....I MADE A STUPID MISTAKE, HEARTS WILL BREAK.
Posted by: Air Jordans | 01/26/2011 at 12:07 AM
Thanks very informative post, love you'r blog, bye.
Posted by: poker | 02/10/2011 at 02:56 AM
Great guy, great thanks once again to enter and maintain this publication in the next one of these good jobs.
Posted by: winamax | 02/10/2011 at 06:21 AM
Americans ever to die in a terror incident outside the U.S. and the deadliest one-day toll for Marines since Iwo Jima in WW II--- not many liberals or conservatives, Left or Right, will want to look too closely at the facts.
Posted by: Juicy Bags | 02/14/2011 at 06:38 PM
None of the turmoil that routinely attends film-star existence ever seemed to visit the Astaire household.
Posted by: air jordan | 02/25/2011 at 05:37 PM
It's great to hear from you and see what you've been up to. In your blog I feel your enthusiasm for life. thank you.
Posted by: Jordan Heels | 04/08/2011 at 03:13 AM
Thank you for the article, I saw after the enlightened, my idea like you, just not good at expression
Posted by: Air Yeezys | 04/08/2011 at 06:37 PM
Meeting you was fate, becoming your friend was a choice, but falling in love with you was beyond my control.
Posted by: cheap jordan retro | 05/05/2011 at 07:42 PM
Besuchen Sie und unter http://auto-versicher.livejournal.com
Posted by: msoautoga | 05/06/2011 at 12:22 PM
In our world, not only do we have variability, we've got unpredictability.
Posted by: Jordan Basketball shoes | 05/06/2011 at 08:11 PM
Good stuff as per usual, thanks. I do hope this kind of thing gets more exposure.
Posted by: GHD Iron | 07/06/2011 at 06:46 AM
i come here first time. You can share some of your article, I'm like you write something, really very good! I will continue to focus on
Posted by: Polo Outlet | 07/13/2011 at 08:21 PM
The nomination of the winner depends on the capability and spirit of the personality to finish the race.I like the post very much as it contain informative in knowledge.I like pics of Chelsea shares of the beauty of running in Madison, Wisconsin.I want to congratulate the winner for the nomination race.I want to know suggestion from others.
Posted by: Nike Free Shoes | 07/13/2011 at 08:23 PM
Only an injunction)0f the lessening Can avoid that problem. Defendant: 1)Our name accurately reflected the first BaFfle of the owner of the store.andwe used the word“secret”as a kind of inside ioke because we wanted to keep the new business a secret from a former boss at a competing store.
Posted by: Cheap Onitsuka Tiger | 07/13/2011 at 08:27 PM
Such a good writing, or by I saw for the first time. I'm quite happy, you are a good writer
Posted by: Air Max Shoes | 07/26/2011 at 02:16 AM
Thanks for your great post.I gonna be back definitely to check the new.
It is great that something interesting here could be found.Excellent work!
Posted by: griffey shoes | 08/01/2011 at 08:29 PM
The paramount duty of Congress is to stop deficiencies by the restoration of that protective legislation which has always been the firmst prop of the Treasury. (William Mckinley, American president)
Posted by: Prada Outlet | 08/03/2011 at 05:54 PM
The paramount duty of Congress is to stop deficiencies by the restoration of that protective legislation which has always been the firmst prop of the Treasury. (William Mckinley, American president)
Posted by: Prada Outlet | 08/03/2011 at 05:54 PM
The paramount duty of Congress is to stop deficiencies by the restoration of that protective legislation which has always been the firmst prop of the Treasury. (William Mckinley, American president)
Posted by: Prada Outlet | 08/03/2011 at 05:54 PM
It is actually truly beneficial to read your net. The information amongst your weblog is strictly superb, and your blog system is Basic type, It isn't dazzied. So superb.
Posted by: Herve Leger Dress | 08/09/2011 at 06:25 AM
http://www.oakleyssunglasscheap.com
Excellent post and job well done! I really enjoyed while reading your post. Thanks for sharing this bunch of valuable info!
Posted by: cheap oakley sunglasses | 08/12/2011 at 11:07 PM
Let me great inspiration, thanks
Posted by: Coach Handbags | 08/18/2011 at 08:16 PM
Thanks for taking the time to discuss this, I feel strongly about information and love learning more on this.
Posted by: oil expellers | 08/19/2011 at 01:23 AM
I would strongly recommend using Eye In The Sky Screener as a means to find great trading opportunities in the stock market.
Posted by: Pellet Mill Plant | 08/24/2011 at 01:48 AM
Coach outlet
Thanks, good information, like it very much.
Posted by: Coach Handbags | 08/29/2011 at 01:19 AM
Vallarino said that once he learned about Varela's dismissal he spoke with Martinelli to voice his support for Varela.Vallarino, a former banker and businessman, has maintained Panama's economy vigorous during his 26-month tenure, with three international rating agencies putting the country's credit rating on a positive outlook.Martinelli has repeatedly asked Vallarino to remain as finance minister until he finds a replacement to ensure the healthy development of the Central American country's economy, which is projected to grow 9 percent this year.
Posted by: rolex daytona | 09/06/2011 at 11:25 PM
I appreciate time and effort you put in your blog.
Posted by: robe de soirée | 09/07/2011 at 08:20 PM
in my opinion you deserve more than just a simple paper. I am sure that they will see your real value in the near future.
Posted by: aluma wallet | 09/08/2011 at 01:21 AM
The best kind of friend is the kind you can sit on a porch swing with,never say a word,and then walk away feeling like it was the best conversation you've ever had.chong http://www.studioredsoxeditionheadphones.com
http://www.viviennewestwoodswear.com/
http://www.21timberland.com/
Posted by: nike high dunks | 09/12/2011 at 07:30 PM
assessing the attractiveness of raising a hundred million dollar fund. The m
Posted by: Balmain Shirts | 09/16/2011 at 02:42 AM
Thanks for sharing. This website is to I too have to help. Very good.
Posted by: cheap jordan 11 | 10/03/2011 at 10:15 AM
Thanks, I'm going to have nightmares tonight.
Posted by: radii supra shoes | 10/13/2011 at 09:43 PM
Thanks, I'm going to have nightmares tonight.
Posted by: supra shoes | 10/16/2011 at 03:03 PM
please add to this blog with more information. I have found it really useful.
Posted by: Pellet Mill | 10/17/2011 at 06:56 PM
does the VC actively promote the startup to other VCs, to potential hires, to potential partners, acquirers, etc.
Posted by: oil seed screw press | 10/24/2011 at 08:07 PM
How to Decide on the right Auto Tools To get Your home Garage
http://www.dandebiz.com/media/catalog/product/n/i/nissan-14pin-to-obdii-connector-01.jpg
If you're the operator of a automobile or perhaps Truck, a new smaller investment in buying the right automotive equipment could allow you to save a huge selection of lbs about typical vehicle maintenance plus restore work. Furthermore, you might make sure that a car runs smoothly for any extended time frame. A handful of fundamental automobile tools and shed equipment, a very good obdii scanner repair guide plus a little patience are enough for you to conserve the hassle connected with visiting the garage area technician each and so sometimes.
The proper Automotive Resources to get a Household Car port
Just about every property storage ought to have a great selection of motor vehicle resources in order to allow you to carry out standard cleaning perform, small fix function plus maintenance. This a number of resources that your home garage should really have usually are:
1 . Auto upkeep resources:Wagon jacks and also axle is an acronym allow you actually to slip below your vehicle for you to carry out straightforward maintenance function, just like altering your fat as well as verifying deplete conduits intended for damage or rust. Any wrench and screw driver are standard tools which are required with regard to various functions, such as changing kindle plugs along with braking mechanism parts, and also changing filter systems. Alternative smaller, nevertheless significant, vehicle resources in which 1 must include are a channel and also smooth enthusiast. Though any funnel could enable you to top off leaks gas or even transmitting smooth, your smooth extractor can be particularly useful throughout altering motor and also brake pedal petrol. It is possible to additionally keep the interior and also outdoor panels of one's vehicle by way of applying any delicate hammer in addition to brusque papers to be able to remove straightforward scuff marks in addition to blemishes.
2 . Vehicle treatment and also auto cleansing resources: You'll be able to clean up your vehicle seat covers by utilizing upholstery tools in which assist you to really small rips along with burns, or maybe you can actually use your restore area more than the particular impacted region. Reestablishing the splendor with the reduce of the auto is usually created simple and easy by simply working with a polisher.
3 . Vehicle restore resources: Ports as well as screw extractors are available in handy regarding altering flat car tyres.
Cars out of particular manufacturers might will need non-standard produced equipment when it comes to size. You can require the actual vehicle locksmith automotive resources described of these vehicles.
Car port Gear
Some other gear that you simply need to possess within your property storage contain:
* Motor oil dipsticks permit you to understand whether your automobile gets the minimum degree of engine oil.
* Metal rim hair brushes can certainly help you clean dirt out of wheels plus take away brake pedal dirt.
* Mix rim enthusiast as well as lock steering wheel fan removing products.
* An auto probe permits screening with regard to voltage, brief tour, bad earths and a continual. It's also utilized pertaining to energising elements including engines, gasoline pushes in addition to relays off or on the actual automobile.
* Lever loop plus keeping resources to help stop motor motion even though you might be removing as well as replacing crankshaft pulley products.
Posted by: Tyler Garahan | 01/04/2012 at 12:09 AM