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Actually, not. A 3x return over 10 years is 11% annually. Subtracting VC fees (say 2% management and 30% take) brings that down to about 6% for the LPs. VCs hav
by tlb 18y ago
Actually, not. A 3x return over 10 years is 11% annually. Subtracting VC fees (say 2% management and 30% take) brings that down to about 6% for the LPs. VCs have to deliver much better returns than that.
Also, don't underestimate the cost of an acquisition. Not just the few $100k in legal fees. Generally it means they have to distribute proceeds to the LPs, and they're exposed to various liabilities if the acquisition goes badly. Assuming they get restricted stock in a public company, selling it is a complex procedure. They may be prohibited in trading in that acquirer's stock while the acquisition is pending, which complicates other deals. Sad to say, but you really can't run a fund with only 3x returns.
- mattmaroon 18y agoThat's not true because of the way the money comes in and out. They don't bring in the money for the entire fund in the beginning, or wait and pay it out at the end. The actual time period over which that 3x would be realized is considerably shorter than 10 years. The 10 year mark is just where any going concerns that still haven't exited are purchased by a new fund or dealt with in some other way. Also, it's closer to 12% annually. And VCs don't take 30%. It's generally 20-25. For a detailed explanation, see this article which shows that a fund that returned 3x would net investors about 30% annually: http://www.vator.tv/news/show/2008-08-03-venture-capital-economics http://www.vator.tv/news/show/2008-08-03-venture-capital-eco...