View from Seed

AUGUST 17, 2021

One industry specific example is the strange fascination among some LPs and GPs around term IRR. Even though everyone knows that VC funds take 10+ years to come to fruition, one often can’t help but benchmark themselves based on IRR in the early days.

IRR 156

IRR Dilution Founder Portfolio 156

VC Cafe

FEBRUARY 27, 2023

IRR (on average) over a 15-year horizon, Venture continues to outperform other long-term asset classes. Founders would be wise to take advantage of their key benefits of being a startup: speed and innovation. Eze Vidra, Remagine Ventures Venture remains attractive but LPs have been burnt With a 11.5%

Venture Capital 215

Venture Capital Technical Review LP Institutional Investors 215

Steve Blank

MARCH 31, 2014

Unfortunately as we’ve learned from recent experience, using Return on Net Assets and IRR as proxies for efficiency and execution won’t save a company when their industry encounters creative disruption. Today billions of dollars that companies could have invested in innovation are sitting in the hands of private equity funds.

Private Equity 330

Private Equity Metrics China Intellectual Property 330

View from Seed

AUGUST 17, 2021

One industry specific example is the strange fascination among some LPs and GPs around term IRR. Even though everyone knows that VC funds take 10+ years to come to fruition, one often can’t help but benchmark themselves based on IRR in the early days.

IRR 136

IRR Dilution Founder Portfolio 136

VC Cafe

MARCH 8, 2010

The Carmel I Fund, raised in 2000, had the highest performance, giving an internal rate of return (IRR) of 8% and a positive multiple of 1.4. Other funds, including Apax Israel II, Israel Seed IV and JVP showed negative IRRs of 20-30%. Capital Raised by Israeli VC funds by Vintage Year* ($B) 2000-2010(E).

IRR 74

IRR Israel Venture Capital Institutional Investors 74

VC Adventure

MAY 5, 2022

I’m observing that IRR is a metric that is becoming an increasing focus in venture, replacing fund return multiple as the key metric of success. I understand the draw of IRR, and – as a fund draws to a close – there’s no question it’s an important metric. Recycling hurts IRR. This is a mistake.

IRR 116

IRR Metrics Valuation LP 116

Startup Professionals Musings

JUNE 5, 2015

There is a rarified brand of successful investors who can show average IRRs of 25 percent or greater over the years. Thus every serious investor reserves a certain amount of his investment capital for follow-on rounds, which allows them to stay to course to success, even with dilution.

Angel Investor 120

Angel Investor Angel Groups Accredited Investor IRR 120

Up and Running

AUGUST 19, 2014

Forget the stupid IRR (that’s internal rate of return) that they taught you in business school. Use a bare-bones streamlined business plan as the storyboard and make sure the summary memo, pitch deck, and main stories all match.

Angel Investor 161

Angel Investor Technical Review Due Diligence Startup 161

Up and Running

DECEMBER 22, 2015

My personal favorite in the “pure nonsense category” is the IRR, the Internal Rate of Return , something that was interesting for about one hour as part of the MBA curriculum, but which has no relevance in the real world. Read more of my articles related to this topic: You Can Take That IRR and Shove It.

Angel Investor 60

Angel Investor IRR Software Review Startup 60

Up and Running

MARCH 6, 2019

But don’t quote me a damned IRR. They are assumptions cascading on assumptions, presented as if they were statistical truth. Show me your projections, yes, and, even better, show me the assumptions behind them. I’ll judge your projections for realism and credibility, but that’s sales, costs, expenses, cash flow, and other basic numbers.

Net Present Value 87

Net Present Value Forecast IRR Oregon 87

David Teten

SEPTEMBER 16, 2014

Despite the difficulties in gathering it, angel return data has gradually accumulated over time and the verdict is in: we’ve looked at a dozen different studies of angel returns , and they show returns ranging from 18% to 54%. . Average Angel Returns Over Time. Time Period. Total Investments. Exited Investments. 1994 – present. 2009-10.

Angel Investor 114

Angel Investor Technical Review Venture Capital Pre-Money Valuation 114

Steve Blank

MARCH 4, 2014

A consequence of using these corporate finance metrics like RONA and IRR is that it ‘s a lot easier to get these numbers to look great by 1) outsourcing everything, 2) getting assets off the balance sheet and 3) only investing in things that pay off fast.

IRR 335

IRR Startup Business Model Agile 335

David Teten

JANUARY 19, 2021

This causes the cost of capital for Flexible VC, often calculated through IRR (similar to an interest rate), can be higher than that of venture debt or traditional RBI. 20-30% is a common target IRR for investors. If a company grows profitably or raises another VC round, the return cap gets repaid ahead of schedule.

Cofounder 78

Cofounder Technical Review Equity Dividend 78

Tim Keane

JANUARY 12, 2010

If you look at the spreadsheet, you will see that the “Required Rate of Return” is expressed as an IRR.   Internal Rates of Return naturally compound, so a 50% IRR is 7.59   (If you plug in an IRR of 58.5%   Internal Rates of Return naturally compound, so a 50% IRR is 7.59 times at 5 years and 11.39

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

David Teten

MAY 16, 2017

As an idea of how high the bar is for a GP, he says , “I dove into our fund log from the last couple of quarters and found that the mean IRR (among VCs listing one) was over 36%.” Chris Douvos is one of the very few LPs who blogs, at SuperLP.com. ” . See for example their interview with Brad Feld. .

Private Equity 60

Private Equity Venture Capital Equity Technical Review 60

Startup Professionals Musings

JUNE 13, 2020

VCs will be looking for a 10X return on their investment in 3 to 5 years, or 30% annual IRR (Internal Rate of Return). Both angel and VC investors are looking for solutions that scale easily (product versus service businesses), and both expect revenue growth that can reach the $20M mark by year five.

Angel Investor 314

Angel Investor Entrepreneur IRR Valuation 314

Steve Blank

JUNE 11, 2013

What is an IRR? The day you raise money from a venture investor, you’ve also just agreed to their business model. Here’s a simple test: If you’re the founder of a startup, go to a whiteboard and diagram how a VC fund works. How do the fund and the partners make money? How long is a fund’s life? What’s a win for them?

Venture Capital 335

Venture Capital IRR Liquidity Event Business Model 335

Seeing Both Sides

SEPTEMBER 26, 2010

A little IRR math shows the price of this elongated time to liquidity – a 5x return in 5 years yields a 38% IRR. To achieve that same 38% IRR in 9 years, a 20x return is required! If the founders take money off the table, they are incented to go for the bigger win and don’t mind taking the time to get there.

IRR 36

IRR IPO Entrepreneur LP 36

Startup Professionals Musings

APRIL 3, 2012

Another rule of thumb is a target of 50% IRR (a discounted cashflow calculation). Expected return rate. Most venture capitalists tell you that they look for 30% annual return, or 10 times initial investment in 3-5 years.

IRR 248

IRR Term Sheet Startup Valuation 248

Version One Ventures

SEPTEMBER 22, 2021

3x the invested capital net of fees over a period of about ten years for a net IRR in the low twenties). When I started Version One Ventures in 2012, every experienced VC shared the same rule of thumb: we had to return 3x net consistently to stay in business (i.e.

Venture Capital 201

Venture Capital IRR Private Equity Seed Stage 201

Startup Professionals Musings

AUGUST 2, 2014

VCs will be looking for a 10X return on their investment in 3 to 5 years, or 30% annual IRR (Internal Rate of Return). Both Angel and VC investors are looking for solutions that scale easily (product versus service businesses), and both expect revenue growth that can reach the $20M mark by year five.

Angel Investor 266

Angel Investor Entrepreneur Venture Capital IRR 266

Startup Professionals Musings

MARCH 12, 2023

VCs will be looking for a 10X return on their investment in 3 to 5 years, or 30% annual IRR (Internal Rate of Return). Both angel and VC investors are looking for solutions that scale easily (product versus service businesses), and both expect revenue growth that can reach the $20M mark by year five.

Angel Investor 246

Angel Investor IRR Venture Capital Valuation 246

Startup Professionals Musings

NOVEMBER 11, 2010

Another rule of thumb is a target of 50% IRR (a discounted cashflow calculation). Expected return rate. Most venture capitalists tell you that they look for 30% annual return, or 10 times initial investment in 3-5 years.

IRR 225

IRR Startup Term Sheet Angel Investor 225

Gust

AUGUST 16, 2012

On the other hand, the large majority of self-described “angel investors”, both domestically in the US and internationally, would not fall into this category.

Angel Investor 152

Angel Investor IRR Early Stage Portfolio 152

SoCal CTO

MAY 19, 2010

The example he uses is: THE RAISE Investment $500,000 Pre Money $600,000 Post Money $1,100,000 OWNERSHIP Founders 55% Investors 45% EXIT Sale Price $5,000,000 Time 5 years INVESTOR RATIOS ROI 355% Multiple 4.55x IRR 35% NPV @ 10% $828,000 Admittedly that valuation and the resulting ownership causes me to wonder, but the most interesting aspect is that (..)

Hockey Stick 205

Hockey Stick NPV IRR Valuation 205

Gust

APRIL 30, 2014

Having now invested in over 85 startups, and finding that my personal metrics are very similar to aggregated industry ones, it is clear that (a) there is little to no correlation between my home runs and my personal favorites, and (b) angel investing done correctly really *can* produce a consistent IRR in the 25%-30% range.

Angel Investor 148

Angel Investor IRR Due Diligence Aggregator 148

Both Sides of the Table

MAY 24, 2021

as measured by MOIC, TVPI and IRR and by sources that don’t reveal the underlying data and who themselves have to rely on incomplete datasets. The method some LPs use to compare funds is called PME (public market equivalent ) but honestly my experience has been that benchmarking is really challenging for LPs (and VCs alike).

Venture Capital 363

Venture Capital LP Valuation Later Stage 363

Steve Blank

JUNE 11, 2013

What is an IRR? The day you raise money from a venture investor, you’ve also just agreed to their business model. Here’s a simple test: If you’re the founder of a startup, go to a whiteboard and diagram how a VC fund works. How do the fund and the partners make money? How long is a fund’s life? What’s a win for them?

Venture Capital 227

Venture Capital IRR Liquidity Event Business Model 227

Steve Blank

JUNE 23, 2016

As a consequence, corporations used metrics like return on net assets (RONA), return on capital deployed, and internal rate of return (IRR) to measure efficiency. Here are four reasons: First, companies bought into the false premise that they exist to maximize shareholder value – which said “keep the stock price high.”

Architecture 227

Architecture IRR Balance Sheet Liquidity Event 227

VC Adventure

OCTOBER 5, 2020

IRR will depend on the timing of cash flows but as a quick rule of thumb, venture funds look to return at least 3 times the invested capital – after fees, so more like 3.5x Taking the most aggressive end of these numbers would still only have this one company returning 70% of the fund’s capital. on a gross basis.

IRR 174

IRR Venture Capital Community Partner 174

David Teten

MAY 8, 2012

As Steve Case has said, it’s ridiculous that anyone can gamble and be guaranteed to lose money, but there are strict regulations around who can invest in early-stage private companies and earn (in some cases) a 27% IRR on their capital. *. The Entrepreneurs Access to Capital Act helps to redress this. Start now! *

Securities and Exchange Commission 148

Securities and Exchange Commission IRR Entrepreneur Angel Investor 148

Startup Professionals Musings

MAY 9, 2011

Luckily for me (and regardless of what anyone else says, there is a lot of luck involved in angel investing), I have since had significant positive exits to companies like Kodak, CBS and Facebook, and the current value of my portfolio is approaching the 30% IRR that rational angels target.

New York 221

New York Accredited Investor Advisory Board IRR 221

David Teten

JANUARY 28, 2013

The good news for Techcrunch readers: Every major study conducted to date has placed angel investors’ IRR between 18 and 38 percent, as summarized by my Partner John Frankel and Professor Robert Wiltbank in prior Techcrunch articles. Every major angel study conducted to date has shown high IRR.

IRR 114

IRR Angel Investor Angel Groups Cofounder 114

David Teten

NOVEMBER 17, 2011

By definition, IRR is calculated using amount invested, amount received at some point in the future, and time passed between the two cash flows. According to the Kauffman study “ Returns of Angel Investors in Groups ”, the mean IRR of angel investments hovered around 27% as of November 2007.

Employee 155

Employee IRR Startup Mexico 155

The Equity Kicker

OCTOBER 25, 2012

This LP is one of the more successful ones, they have positions in many of the top funds and have achieved a very comendable IRR from their investments in venture funds (well north of 20%, which is great as an average). So think of the following as the profile of a successful fund rather than an average fund.

LP 150

LP IRR Venture Capital Naming 150

VC Adventure

AUGUST 12, 2014

The resulting fund would have an IRR in the range of 10% (the exact IRR would depend on the timing of the cash flows, but I constructed a few models to approximate this and 10% was the average return). That’s hardly something to write home about and underscores the challenge of being “average” in this industry.

IRR 134

IRR Portfolio Distribution Venture Capital 134

View from Seed

JULY 15, 2020

This may not hurt the ultimate exit value of these companies, but the passage of time will hurt the fund’s ultimate IRR. VC’s may have been expecting significant liquidity from some companies in 2020 and early 2021, but will need to put that off for some time even if the companies are doing ok. Reshuffling the deck.

Portfolio 215

Portfolio IRR Dilution Distribution 215