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Great explanation. Notice how the VC fees eat heavily into the LPs profits. $500M in profit netted only $200M after fees - leaving only a 20% return after ten y
by briholt 11y ago
Great explanation. Notice how the VC fees eat heavily into the LPs profits. $500M in profit netted only $200M after fees - leaving only a 20% return after ten years. The S&P500 would've easily beaten that rate. A VC firm needs to have a skyhigh IRR before their LPs get their money's worth.
- Alleluja 11y agoSimple fact is that VCs at large had worse returns than S&P 500 in the past 10 years: http://pando.com/2013/07/30/ouch-ten-year-venture-returns-still-lag-the-broader-markets/ http://pando.com/2013/07/30/ouch-ten-year-venture-returns-st...
- surfearth 11y agoThis phenomenon is called the j-curve. Its not that the IRR needs to be sky-high, rather that the fair value of the fund's aggregate investments need to appreciate above the cumulative amount of fees drawn before the IRR can be positive. http://en.wikipedia.org/wiki/J_curve#Private_equity http://en.wikipedia.org/wiki/J_curve#Private_equity