Qubit: David Clark (VenCap) on VC Power Law
It’s not often that an allocator with a mature portfolio of established venture funds shares historical data on their investments.
David Clark of VenCap International highlighted that:
More than half of their portfolio companies backed by their funds are less than cost, more than a fifth are write-offs
11.8% returned at least 5x of cost
5.4% returned 10x or more
Only 1.1% returned the fund, that’s 121 out of 11,350 companies
“I've seen a few threads recently about the power law in venture capital and what this means for individual company returns. We looked at our data on 11,350 companies backed by 259 funds from 1986 to 2018.
These are all funds that we committed to at VenCap and were raised by some of the most successful VC firms in the industry. The data includes both realised and unrealised investments.
Over 6,000 of these companies (53.2%) are at less than 1x cost. Of these, more than 2,500 (22.6%) are complete write-offs.
Another 2,157 companies (19%) were marginally successful in that they returned somewhere between 1x and 2x cost.
1,813 companies (16%) were moderately successful and returned more than 2x cost, but less than 5x.
There were just 1,342 companies (11.8%) that have returned at least 5x cost. That's around one in every nine companies.
So what about ten-baggers - companies returning 10x cost or higher. Only 614 companies achieved this milestone. That's 5.4% of all the companies in our sample.
And then finally, what about fund returners - companies that returned 100% or more of the committed capital of the fund that backed them. Just 121 companies (1.1%) hit this mark.
So what's the takeaway from this data? It again reinforces just how much of a power law business venture capital is. It's the top 1% of companies that ultimately drive the majority of VC returns.”
Source:
Tweets, Posts, and Charts:
Qubits are insights that we find and share with you.