Venture Capital

How Do VCs Measure Success?

Feb 6, 2024

In this podcast, the hosts explore how VCs measure success in the ever-evolving venture capital landscape. They discuss benchmarks like beating the S&P 500 and striving for top quartile status. The hosts also delve into the nuances of financial indicators such as IRR and MOIC. Additionally, they shed light on important factors like hit rate, loss ratio, TVPI, and DPI. Personal insights on measuring success are shared by one of the hosts.

13:35

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Quick takeaways

One important metric for measuring success for venture capitalists is their ability to beat the S&P 500 and generate higher returns for their investors.

VCs use Internal Rate of Return (IRR) and Multiple on Invested Capital (MOIC) as metrics to assess success and aim for a net return of 20-30% per year and a MOIC of 3-5x for the overall fund.

Deep dives

Measurement of success for VCs: Beating the S&P 500 and top quartile performance

One important metric for measuring success for venture capitalists (VCs) is their ability to beat the S&P 500. VCs aim to outperform the overall market and demonstrate that they can generate higher returns for their investors. Additionally, VCs often strive to achieve top quartile performance compared to other venture funds. This means they want to be among the top 25% of funds in terms of performance, regardless of the performance of the S&P 500. However, it is noteworthy that many VCs boast about being top quartile, while criticizing the performance of other VCs.

Introduction

2min

Comparing VC Performance and Discussing Internal Rate of Return

2min

Measuring Success in Venture Capital: IRR, Multiple on Invested Capital, and Fund Returns

2min

Measuring Success in Venture Capital

3min

Measuring Success at the University of Growth Fund

5min

Welcome to another episode of Venture Capital podcast, where John Bradshaw and Peter Harris delve into the intricacies of the startup world. In this episode, the spotlight is on a critical question: "How do VCs measure success?"

The hosts explore various dimensions of success in the venture capital realm. Is it all about becoming a billionaire, or is there more to it? The conversation unfolds as they dissect the subjective nature of success in the ever-evolving venture capital landscape.

They navigate through the common benchmarks used by VCs to gauge their performance. From beating the S&P 500 to striving for top quartile status among venture funds, the hosts share insights into the metrics that matter in the competitive world of venture capital.

The discussion takes an interesting turn as they explore the nuances of Internal Rate of Return (IRR) and Multiple on Invested Capital (MOIC). Is IRR just a vanity metric, and how does MOIC play a crucial role in assessing a venture fund's success? The hosts break it down, offering valuable perspectives on these key financial indicators.

In addition to financial metrics, the hosts shed light on other crucial factors like hit rate, loss ratio, Total Value to Paid-In Capital (TVPI), and Distributions to Paid-In Capital (DPI). These metrics provide a comprehensive view of a venture fund's journey, emphasizing the importance of tangible returns and effective risk management.

Peter also shares personal insights into how he measures success at the University Growth Fund, emphasizing the significance of producing risk-adjusted returns, raising subsequent funds, and making a meaningful impact on entrepreneurs and students.

As the hosts wrap up the episode, they reflect on the evolving dynamics of the venture capital landscape and express gratitude for the growing podcast community. Tune in to gain valuable insights into the metrics and considerations that define success in the world of venture capital. Don't forget to leave a five-star review and share your thoughts in the comments—your feedback is what keeps this podcast thriving!

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