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How do you decide the number of companies you invest in each year? Is this simply a function of the available capital or do you take future capital requirements
by cinntaile 6y ago
How do you decide the number of companies you invest in each year? Is this simply a function of the available capital or do you take future capital requirements of the companies you want to invest in into account?
Let's say you only pick the top 0.25%, do you do any statistical analysis afterwards to see if this percentage gave the best ROI? Because I would assume that the top 1% at least gets funded by other VCs so it should be possible to do this? Although at the same time I wonder if outsized returns can really be made if there is a VC consensus of the top 1%, my understanding is that the best returns are made in firms that people disagree on.
- lpolovets 6y agoGood returns can come both from consensus and nonconsensus companies. For example, Robinhood has publicly spoken about the large number of investors that passed on their seed round, while Flexport has been inundated with interest during every funding round. One big constraint on the # of investments per year for a fund is the amount of time that the fund's partners have. Investors want to differentiate themselves with the help they can provide, and help takes time. As a result, a Series A investor/board member can manage 1-2 new investments per year, while a seed investor might be able to manage 3-8 new investments per year. So # of partners * ~5 investments per year is a good estimate of how many investments a hands on seed fund will do. There are funds that invest in a lot more companies, but they tend to write small checks and are less hands on.