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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 journali

by asr 16y ago

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%20Index.pdf http://www.cambridgeassociates.com/pdf/Venture%20Capital%20I...) you'll see the real story is "Venture Firms Lose Money from 2000-2002." Which everyone already knows. Really, really terrible work.

secretasiandan 16y ago
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?
- asr 16y ago
  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.

by asr 16y ago

secretasiandan 16y ago

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?

asr 16y ago
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.