4 ms·

The article mentions rates of return of ca. 20%. Are these realized IRR numbers? I would imagine the unrealized IRR (including only priced rounds, not convertib

by bdcs 12y ago

The article mentions rates of return of ca. 20%. Are these realized IRR numbers? I would imagine the unrealized IRR (including only priced rounds, not convertible notes [or SAFEs] with a higher cap) are higher than this. Am I mistaken? What is convention here?

antr 12y ago
> 500 Startups’ first fund, a $29 million pool from 2010, had an 18% net investment rate of return as of the third quarter of 2014, according to Mr. McClure. The mean return for all venture funds raised in that year stood at 20.5% This, to me, is the real reason. I know it doesn't paint the entire picture, but if I were a portfolio manager at an endowment or pension fund I wouldn't invest in 500 Startups: 1. The fund is performing below the industry average (caveat, I'd like to see what makes up that "venture funds" average), and 2. even if we ignore the venture funds average return, 18% net IRR seems extremely low for an investment vehicle that has above average risk. From a portfolio management perspective I'd rather investment in mezzanine funds, where the return is higher than 18% and a risk lower than equity/VC financing. My feeling is that 500 Startups returns are decoupled from the inherent risk... all I'm saying is that 500S is not picking the right (home run) investments/companies. Let's remember that these LPs/institutional investors have a fiduciary duty to make sound investments, and 500 Startups doesn't meet the "right" criteria. However, I were fund raising for 500 Startups, I would target wealthy individuals, family offices, et al. who investment on their own behalf[1], and haven't got that third party responsibility. [1] I'm not saying these investors are not disciplined, but are able to take on unconventional risks.
- vasilipupkin 12y ago
  Ideally, all investors want to invest into a top fund. But that is hard to do because of capacity constraints and because you don't know ex ante which fund will be in the top 5% in the future - so this sort of performance close to the mean seems pretty good.
- davemc500hats 12y ago
  we believe we are performing far above average, actually... both in IRR, exits, black swans, and other areas. that said, we are less than 5 years old and most VC funds don't have much measurable results until 4-8 years in. our first fund is performing at 18% Net IRR (which includes fees; I think the WSJ #s were actually Gross IRR, which would be higher for our fund as well, and likely considerably above mean). regardless, our second fund is performing at 27% Net IRR, which is performing considerably higher than median 6% IRR as reported by WSJ / Cambridge. our third fund is still very early (just over 1 year old), however it seems we are performing over 30-40% IRR (44% currently). so overall: - our funds are performing substantially above median - our performance appears to be increasing over the past 3 funds - I doubt that most LPs have turned us down because occasionally I use some 4-letter words... thanks, DMC
  - antr 12y ago
    Dave, thanks for the clarification and insights. Your comment provides a much better insight into the fund. Thanks

by bdcs 12y ago

antr 12y ago

> 500 Startups’ first fund, a $29 million pool from 2010, had an 18% net investment rate of return as of the third quarter of 2014, according to Mr. McClure. The mean return for all venture funds raised in that year stood at 20.5% This, to me, is the real reason. I know it doesn't paint the entire picture, but if I were a portfolio manager at an endowment or pension fund I wouldn't invest in 500 Startups: 1. The fund is performing below the industry average (caveat, I'd like to see what makes up that "venture funds" average), and 2. even if we ignore the venture funds average return, 18% net IRR seems extremely low for an investment vehicle that has above average risk. From a portfolio management perspective I'd rather investment in mezzanine funds, where the return is higher than 18% and a risk lower than equity/VC financing. My feeling is that 500 Startups returns are decoupled from the inherent risk... all I'm saying is that 500S is not picking the right (home run) investments/companies. Let's remember that these LPs/institutional investors have a fiduciary duty to make sound investments, and 500 Startups doesn't meet the "right" criteria. However, I were fund raising for 500 Startups, I would target wealthy individuals, family offices, et al. who investment on their own behalf[1], and haven't got that third party responsibility. [1] I'm not saying these investors are not disciplined, but are able to take on unconventional risks.

vasilipupkin 12y ago
Ideally, all investors want to invest into a top fund. But that is hard to do because of capacity constraints and because you don't know ex ante which fund will be in the top 5% in the future - so this sort of performance close to the mean seems pretty good.
davemc500hats 12y ago
we believe we are performing far above average, actually... both in IRR, exits, black swans, and other areas. that said, we are less than 5 years old and most VC funds don't have much measurable results until 4-8 years in. our first fund is performing at 18% Net IRR (which includes fees; I think the WSJ #s were actually Gross IRR, which would be higher for our fund as well, and likely considerably above mean). regardless, our second fund is performing at 27% Net IRR, which is performing considerably higher than median 6% IRR as reported by WSJ / Cambridge. our third fund is still very early (just over 1 year old), however it seems we are performing over 30-40% IRR (44% currently). so overall: - our funds are performing substantially above median - our performance appears to be increasing over the past 3 funds - I doubt that most LPs have turned us down because occasionally I use some 4-letter words... thanks, DMC
- antr 12y ago
  Dave, thanks for the clarification and insights. Your comment provides a much better insight into the fund. Thanks