DISQUS

Seth · 2 years ago

Matt, this is interesting but it seems like there's another deception. I may be mistaken, but the numbers don't seem to include a factor to account for the differences in liquidity between a public index and a venture fund. (And those differences can skew the math.)

Specifically, if you look at public company indexes and measure Return on Investment, it's simple because there is a clear valuation for every company. There is an explicit market-determined value on different dates. If you invest $1000 today, next week, you can pick a day and find out exactly how much your investment has changed. Nasdaq is up or down, simple, liquid.

In a VC portfolio until there is a "liquidity event" it's obviously different. That $1000 could be tied up for 5 years and then be worth $100k or be worthless.

So the question I have is, how do these studies value and account for money during the five years it's tied up? Do they account for illiquid investments.

If a venture fund, for example, has only seen returns on 20 percent of its investments - and a study only uses that 20 percent for measurement of return - 80 percent of capital under management didn't get factored in. That doesn't make for a very accurate measure of performance.

If they've accounted for all the capital in the fund, different story (but it doesn't look like they've done that).

Peter Cranstone · 2 years ago

Matt,

You might want to take a look at this linkL http://hosting.mansellgroup.net/enablemail/Thom...
for more information on VC returns. It paints a slightly different (but maybe more realistic) picture than your post above.

Peter

Joe · 2 years ago

Seth - all VC and PE funds are required to value their portfolios at FMV, so the issue you raise is actually addressed to some large degree. The return data factors in these protfolio FMV's.