tag: venture-capital
10 proofs
A venture capital fund investing $50 million in 25 startups at equal sizes requires at least one 50x return and two 10x returns to achieve a 3x gross multiple.
If a company raises $5 million in Series A at a $25 million post-money valuation and exits at $500 million seven years later, the annualized return to the Series A investor exceeds 40% before dilution.
In venture capital, the top 10% of investments generate more than 75% of total portfolio returns, following a power law distribution.
Sources: Andreessen Horowitz (a16z): 'The Babe Ruth Effect in Venture Capital' (Horsley Bridge data, 7,000+ investments, 2000-2014), Cambridge Associates: Power Law Returns in Venture Capital — concentration of VC returns, National Bureau of Economic Research: 'Venture Capital and the Finance of Innovation' — Metrick and Yasuda, power law in VC
Sequoia Capital manages over $100 billion in assets under management (AUM), with an average fund multiple exceeding 4x net returns to investors.
Sources: Wikipedia: Sequoia Capital — AUM figure for US/Europe entity (2024), Wikipedia: HongShan — formerly Sequoia China, now independent entity, Wikipedia: Peak XV Partners — formerly Sequoia India/Southeast Asia
The average exit multiple for SaaS venture-backed companies is 8.5x invested capital, higher than for consumer internet companies.
The failure rate for venture-backed startups is 70% within 10 years, lower than the commonly cited 90% for all startups.
Sources: Harvard Business School News: The Venture Capital Secret (Shikhar Ghosh), Inc. Magazine: Report — 3 Out of 4 Venture-Backed Start-Ups Fail, LLC.org: Startup Failure Rate Statistics (citing BLS data)
The superior predictor of venture success is founder pedigree from elite universities rather than market size or product traction.
US venture capital funding reached $332 billion in 2021 before declining by over 35% in 2022.
Sources: NVCA Press Release: U.S. VC Activity Soars to New Highs in 2021, CB Insights: State of Venture 2022 Report, Built In: VC Funding Dropped in 2022 but Eclipsed Pre-2021 Totals (citing PitchBook-NVCA)
Venture capital funds vintage 2012-2016 have a median net IRR of 16.8% according to Cambridge Associates but 18.2% according to Preqin.
Y Combinator has backed over 100 unicorns since its inception in 2005.
Sources: Jared Heyman (Medium): 'On 101 Y Combinator unicorns' — Analysis of YC's official Top Companies list (August 2022), PitchBook: Y Combinator leads among accelerators in unicorn-creation rate