5 ms·

To my eye, the story here is how awful VC is as an asset class. Like, this is as good as it gets, guys. This is it. Even with these returns being kinda so-so

by warcher 10y ago

To my eye, the story here is how awful VC is as an asset class. Like, this is as good as it gets, guys. This is it. Even with these returns being kinda so-so (relative to the lack of liquidity, ten year return cycle, et cetera), these guys are easily in the top five percent of VC firms. Dumb old index funds are going to roughly double your money in ten years with reinvestment of dividends. If a VC can't hit 3x, the numbers don't really add up to make it worth your while to write a big check and just park it for a decade. The point of the article is that even the best of the best can miss those numbers and still be in the top fifth percentile. Yikes.

deleted 10y ago
[deleted]
up_and_up 10y ago
> Like, this is as good as it gets, guys. This is it. Pretty sure they reference both Sequoia and Benchmarks as having 8x and 11x returns. So not sure this is really as good as it gets. I think it more points to the over hype of certain firms vs the ones who can actually deliver on investor money.
- iaw 10y ago
  They also emphasize that those returns are largely on paper excluding the WhatsApp purchase... So still illiquid and able to move down.
  - the_watcher 10y ago
    That's also how VC works. Gains are on paper until liquidity.
- kchoudhu 10y ago
  Sure, and investing with Goldman Sachs special situations will occasionally get your 10x returns too. It's not repeatable though, so it doesn't make sense to bet your or anyone else's retirement on it, which is what a lot of LPs seem to be doing.
  - cloudjacker 10y ago
    I like the time when Libya got their sanctions lifted and invested in a Goldman Sachs fund, and GS lost 98% of their money
- warcher 10y ago
  You can win in poker on an inside straight, too. Doesn't make it a smart hand. My point was not about a16z, but the other 95% of funds.
quaresma 10y ago
Can you point me to some materials about how to invest in index funds? I'm an engineer looking to start making wise choices on where to invest my money.
- ProAm 10y ago
  https://www.vanguard.com/ https://www.vanguard.com/ Lots of great information on this.
- kchoudhu 10y ago
  Do your due diligence, but here are the cliffnotes: All stocks in the US: FSTVX, VTSAX All bonds in the US: FTBFX, VBTLX Step 1: Put {your_age}% in one of the bond funds, and the rest in the stock fund. Step 2: Religiously invest a portion of your salary every month. Step 3: Don't look at your savings more than once every quarter or so. Step 3.5: Don't let your spending grow out of control as your career progresses and your salary grows. Step 4: Retire a multi-millionaire in inflation adjusted dollars after 20-30 years or so.
  - jrlocke 10y ago
    Guidance on the portion of salary to invest?
    - mipmap04 10y ago
      10% is a pretty common percentage and what I put towards bonds and stocks each month. I do pretty much what the parent post said.
    - my_username_is_ 10y ago
      If you want to retire earlier than the traditional 65, this is a good starting point to figure out how much to save based on when you want to retire: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
    - kchoudhu 10y ago
api 10y ago
That's not necessarily a good thing. Take VC out of the economy and you don't have much funding for innovation outside of academia, and academia fails miserably at bringing the results of research to the product / usability stage. It's also important to note that over-investment in index funds will lead to economic distortions for the same reason that the housing bubble happened. "Mortgages are incredibly safe as an asset class, so let's put all money into broadly diversified pools of mortgages!" (Six years later...) "Who could have predicted that the entire housing sector would over-inflate and all mortgages would suddenly default?" When you inflate a sector you change the odds via feedback loops.
- warcher 10y ago
  I'm in flyover country, man. It's great for me. The thing about the Valley is that they've kinda scorched the earth with the capital carpetbombing, negative profit margin style of tech development. So much so that's it's coming back to bite even them-- those IPOs didn't burn themselves out, but they're stuck in this prisoner's dilemma trap where they can't quit the juice.
  - tomcam 10y ago
    Not sure exactly what that meant, but I enjoyed the Tarantino-esque swagger
rdlecler1 10y ago
We're now in a low growth environment. 20% IRR+ over 7+ years is probably going to be a lot better than you're going to do in the public markets over the next 10 years and it's unlikely that we'll see the DOW at 40,000 by 2026. All the information asymmetries have been arbitraged away and companies are not growing that fast.
- warcher 10y ago
  Eh, the last ten years covered the 2008 pop, and it's right at double. I imagine we're about due for another correction, especially as the baby boomers start to liquidate, or interest rates finally inch past zero, but... that's pretty much going to hammer everything. I very much doubt the IPO/acquisition market is recession proof. Maybe I'm wrong about that, I'm only a casual market bystander.
  - rdlecler1 10y ago
    Yes, and that was with massive asset inflation from 0% rates. Moreover, there were a few once-in-a-lifetime growth events in there including globalization, China, smart phones, Google, social media. Doubling that from this point in the next 10-years is going to be tough. Expect sideways growth in the public markets over the next 10-years.
cloudjacker 10y ago
If you are an accredited investor, what is the minimum investment amounts into funds those firms offer? Where can I browse the catalogue? Are redemptions (getting your money back) possible throughout the life of the fund? Various conditions on commitments? etc
brudgers 10y ago
Having been around through several recessions, my observation is that the idea that dumb index funds double your money every ten years is a theory that can [and has historically] run counter to the facts. One reason is that the dumb index funds are tied to indexes that simply swap out losing investments for winners when there's a loser in the index. It does not cost the index any money, but actual funds have to realize the loss of the loser and then pay for the winner. Ten years ago the DJI was about 12k. Today it's 18k. That's not doubling every ten years. Over the long term upward trend it's a double since 1998...though if a person had had a pile of money to throw at the DJI in 2009, yes they could have doubled their money in seven years. In 2009, most people did not have a pile of money to throw at the Dow...or rather whatever pile they had was much smaller than it had been two years earlier.
- soccerdave 10y ago
  It doesn't sound like you are accounting for the re-invested dividends which will put a 10 year investment well above that 50% return you mentioned. This quick site that I found says the DJIA is up 110% over the last 10 years if you reinvest dividends. https://dqydj.com/dow-jones-return-calculator/ https://dqydj.com/dow-jones-return-calculator/
  - JauntTrooper 10y ago
    And the S&P 500 Index is up 158% over the last ten years, including reinvested dividends.

by warcher 10y ago

deleted 10y ago

[deleted]

up_and_up 10y ago

> Like, this is as good as it gets, guys. This is it. Pretty sure they reference both Sequoia and Benchmarks as having 8x and 11x returns. So not sure this is really as good as it gets. I think it more points to the over hype of certain firms vs the ones who can actually deliver on investor money.

iaw 10y ago
They also emphasize that those returns are largely on paper excluding the WhatsApp purchase... So still illiquid and able to move down.
- the_watcher 10y ago
  That's also how VC works. Gains are on paper until liquidity.
kchoudhu 10y ago
Sure, and investing with Goldman Sachs special situations will occasionally get your 10x returns too. It's not repeatable though, so it doesn't make sense to bet your or anyone else's retirement on it, which is what a lot of LPs seem to be doing.
- cloudjacker 10y ago
  I like the time when Libya got their sanctions lifted and invested in a Goldman Sachs fund, and GS lost 98% of their money
warcher 10y ago
You can win in poker on an inside straight, too. Doesn't make it a smart hand. My point was not about a16z, but the other 95% of funds.

quaresma 10y ago

Can you point me to some materials about how to invest in index funds? I'm an engineer looking to start making wise choices on where to invest my money.

ProAm 10y ago
https://www.vanguard.com/ https://www.vanguard.com/ Lots of great information on this.
kchoudhu 10y ago
Do your due diligence, but here are the cliffnotes: All stocks in the US: FSTVX, VTSAX All bonds in the US: FTBFX, VBTLX Step 1: Put {your_age}% in one of the bond funds, and the rest in the stock fund. Step 2: Religiously invest a portion of your salary every month. Step 3: Don't look at your savings more than once every quarter or so. Step 3.5: Don't let your spending grow out of control as your career progresses and your salary grows. Step 4: Retire a multi-millionaire in inflation adjusted dollars after 20-30 years or so.
- jrlocke 10y ago
  Guidance on the portion of salary to invest?
  - mipmap04 10y ago
    10% is a pretty common percentage and what I put towards bonds and stocks each month. I do pretty much what the parent post said.
  - my_username_is_ 10y ago
    If you want to retire earlier than the traditional 65, this is a good starting point to figure out how much to save based on when you want to retire: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
  - kchoudhu 10y ago

api 10y ago

That's not necessarily a good thing. Take VC out of the economy and you don't have much funding for innovation outside of academia, and academia fails miserably at bringing the results of research to the product / usability stage. It's also important to note that over-investment in index funds will lead to economic distortions for the same reason that the housing bubble happened. "Mortgages are incredibly safe as an asset class, so let's put all money into broadly diversified pools of mortgages!" (Six years later...) "Who could have predicted that the entire housing sector would over-inflate and all mortgages would suddenly default?" When you inflate a sector you change the odds via feedback loops.

warcher 10y ago
I'm in flyover country, man. It's great for me. The thing about the Valley is that they've kinda scorched the earth with the capital carpetbombing, negative profit margin style of tech development. So much so that's it's coming back to bite even them-- those IPOs didn't burn themselves out, but they're stuck in this prisoner's dilemma trap where they can't quit the juice.
- tomcam 10y ago
  Not sure exactly what that meant, but I enjoyed the Tarantino-esque swagger

rdlecler1 10y ago

We're now in a low growth environment. 20% IRR+ over 7+ years is probably going to be a lot better than you're going to do in the public markets over the next 10 years and it's unlikely that we'll see the DOW at 40,000 by 2026. All the information asymmetries have been arbitraged away and companies are not growing that fast.

warcher 10y ago
Eh, the last ten years covered the 2008 pop, and it's right at double. I imagine we're about due for another correction, especially as the baby boomers start to liquidate, or interest rates finally inch past zero, but... that's pretty much going to hammer everything. I very much doubt the IPO/acquisition market is recession proof. Maybe I'm wrong about that, I'm only a casual market bystander.
- rdlecler1 10y ago
  Yes, and that was with massive asset inflation from 0% rates. Moreover, there were a few once-in-a-lifetime growth events in there including globalization, China, smart phones, Google, social media. Doubling that from this point in the next 10-years is going to be tough. Expect sideways growth in the public markets over the next 10-years.

cloudjacker 10y ago

If you are an accredited investor, what is the minimum investment amounts into funds those firms offer? Where can I browse the catalogue? Are redemptions (getting your money back) possible throughout the life of the fund? Various conditions on commitments? etc

brudgers 10y ago

Having been around through several recessions, my observation is that the idea that dumb index funds double your money every ten years is a theory that can [and has historically] run counter to the facts. One reason is that the dumb index funds are tied to indexes that simply swap out losing investments for winners when there's a loser in the index. It does not cost the index any money, but actual funds have to realize the loss of the loser and then pay for the winner. Ten years ago the DJI was about 12k. Today it's 18k. That's not doubling every ten years. Over the long term upward trend it's a double since 1998...though if a person had had a pile of money to throw at the DJI in 2009, yes they could have doubled their money in seven years. In 2009, most people did not have a pile of money to throw at the Dow...or rather whatever pile they had was much smaller than it had been two years earlier.

soccerdave 10y ago
It doesn't sound like you are accounting for the re-invested dividends which will put a 10 year investment well above that 50% return you mentioned. This quick site that I found says the DJIA is up 110% over the last 10 years if you reinvest dividends. https://dqydj.com/dow-jones-return-calculator/ https://dqydj.com/dow-jones-return-calculator/
- JauntTrooper 10y ago
  And the S&P 500 Index is up 158% over the last ten years, including reinvested dividends.