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Most VCs don’t care how long your company takes to show a return – they don’t get to re-invest proceeds of their deals, so if you exit early, the money sits in
by dschobel 15y ago
Most VCs don’t care how long your company takes to show a return – they don’t get to re-invest proceeds of their deals, so if you exit early, the money sits in a bank account earning interest for years instead of contributing to their returns.
Can anyone explain why this is the case?
- rfrey 15y agoMany VCs raise a fund, allocate it, then distribute the proceeds to the limited partners as the investments exit. That's why VCs are sometimes seen simultaneously sitting on several boards, looking for the last one or two investments, and raising the next fund.
- danshapiro 15y ago(OP here) I tried to explain this in my post here: http://www.danshapiro.com/blog/2010/08/vc-insanity-economics/ http://www.danshapiro.com/blog/2010/08/vc-insanity-economics... although rfrey's explanation is excellent and succinct.
- joshu 15y agoFirst, he's wrong about the money sitting it in a bank account - it is distributed to the LPs (as rfrey says) Second, it doesn't have to be the case; it's just that most funds are structured this way. There are funds called evergreen funds, where the proceeds return to the fund and get reinvested.
- rdl 15y agoWhich of the big funds are evergreen?