3) The IRR of the firm. Beyond IRR, look at the quality of the engineering talent on-boarded by graduates of the program. Not all incubators are created equal--and with more of them out there, you need to choose where you apply wisely. The age of the accelerator is officially upon us. MORE
When you do an Internal Rate of Return (IRR) calculation for an investor, the difference can be dramatic. Using the hypothetical example from the graphic above, an exit in 3 years at a 5x return works out to an IRR of 124%. MORE
And Internal Rate of Return (IRR)? Finance angel investment IRR ROI venture capital Flash: investors don’t believe your ROI projections. News at 11. Why is this news? It shouldn’t be. But recently I joined two other angel investor members of our local group in a conference call giving companies feedback on why they didn’t make the final rounds in our annual event. MORE
The definitive answer to these questions will come over time as our portfolio matures, our companies exit, and we can demonstrate a high cash to cash IRR. Fund managers are assessed, in part, on their ratio of expenses to assets under management. MORE
VC venture capital IRR fund size asset class investing“One explanation for the correlations we’ve seen is that firms with the best deal flow and track records tend to be able to raise larger funds. In that case, the performance advantages they enjoy may be owed to their personal networks and not to fund size.” - “ Does Fund Size Matter? ” via NEA. An interesting counter-argument to the smaller is better debate when it comes to VC’s. MORE
Investors win either way - an instant 2X multiple on investment (and a crazy high IRR), or a highly desirable company that they believe has growth potential. Debate is already starting around Instagram's recently-announced acquisition by Facebook. e.g., Why the heck would Instagram sell a stake of its soon-to-be-acquired company to Sequoia (and Thrive, and Greylock, and Benchmark?) The reason is simple: playing chicken with a potential acquirer can drive a much higher valuation. MORE
Over the past 10 years their quarterly internal rate of return (IRR)—the primary measure of VC success—was dismal, hovering in the single percentage points and sometimes dipping into negative territory. Tags: Uncategorized VC IRR This piece in HBR is must read, it details why there will be a lot fewer VC funds in the future. The sky is falling on the venture capital rainmakers. MORE
So here's what the charts say for follow on strategies: If you run down the first column, what it says is that it basically doesn't matter if you follow on from an IRR perspective--a percent won't kill you here or there. Time is the enemy of IRR. MORE
VCs will be looking for a 10X return on their investment in 3 to 5 years, or 30% annual IRR (Internal Rate of Return). Too many entrepreneurs tell me they are looking for an investor, and can’t differentiate between venture capital (VC) investors versus accredited Angel investors. MORE
Here they are below: Track record, increasing IRR, value of startups in portfolio to date. Some of our team and I were having a chat about what does it take to be an awesome investor. When I first started investing back in 2006, I was arrogant enough to think that, being a veteran from Yahoo and having worked on so many web products, that I was good enough to invest in internet startups. MORE
in fact, it is incredibly hypocritical and patently FALSE for the VC industry -- which has NEGATIVE IRR over the past 10 years, and historically poor performance -- to criticize high-volume strategies as being somehow crazy. again, it is tantamount to conspiracy that people who are failing miserably at venture capital investment with ridiculously poor IRRs are disparaging anyone else with a quantitative invesment strategy. MORE
It’s not very often that angel networks disclose results. Most of us are ready and willing to discuss our approaches, beliefs or methods, but usually stop well short of providing the proof of our assertions. Today, Golden Angels is publishing. Funding startups MORE
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. MORE
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. *. MORE
To measure the efficiency of doing this, we redefined profit not as dollars, yen or renminbi, but as ratios like RONA (return on net assets), ROCE (return on capital employed) and I.R.R. A Capitalist's Dilemma by Clayton Christensen. The Money Quote: The answer is that efficiency innovations are liberating capital, and in the United States this capital is being reinvested into still more efficiency innovations. MORE
The reality is that results in angel investing tend to bifurcate: “Professional” angel investors, who are investing calmly, steadily, relatively-rationally, over a long period of time and with a strong knowledge of both investment math and early stage realities, tend to not only make money, but do quite well: the average return for a comprehensive, well-managed angel portfolio is between 25% and 30% IRR. MORE
Sounds like a huge amount, but only later does he say that only " 476 funds which had known Net IRR values, the overwhelming majority of which were from vintage 2002, or more recently." 3) You can't eat IRRs for breakfast. You know what the IRRs of Quirky and Fab were before they went to zero? Looking at interim IRRs of young funds, especially during boom periods in venture isn't predictive of outcomes. MORE
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. MORE
VCs will be looking for a 10X return on their investment in 3 to 5 years, or 30% annual IRR (Internal Rate of Return). Too many entrepreneurs tell me they are looking for an investor, and can’t differentiate between venture capital (VC) investors versus accredited Angel investors. MORE
Forget the stupid IRR (that’s internal rate of return) that they taught you in business school. Got a question for one of the angel investors mentioned below? Skip ahead and leave it in the comments. Today is Ask an Angel day! MORE
Based on the Wiltbank Study, investors should expect a 27% IRR in six years. We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors. The Venture Capital Method (VC Method) was first described by Professor Bill Sahlman at Harvard Business School in 1987 in a case study and has been revised since. MORE
But don’t quote me a damned IRR. I’m writing this in the airport on my way to Austin, TX., where I’m going to be a judge at the University of Texas Venture Labs global business plan competition (used to be mootcorp). Between contests like this one and angel investment, I’ve heard two dozen or so business pitches lately. I’m talking about the 10-20 minute slide presentations and accompanying questions and answers. . Boring. MORE
A common intermediary milestone for most investors is IRR (internal rate of return) of the fund. So there are a lot of unrealized gains built into the IRR of an early fund. Furthermore, we’ve established that companies don’t get credit for revenue — this does not get factored into IRR calculations. IRR calculations are based on two things — changes in a company’s value and the time-scale on which this happens. MORE
There is a rarified brand of successful investors who can show average IRRs of 25 percent or greater over the years. MORE
I was on the way to my lifetime IRR of 90%. I met Kathryn Gould longer ago than either of us want to admit. MORE
Matrix had a fund in 1998 that yielded an eye-popping 514+% IRR. In May 1996, Open Market completed a successful IPO and more than doubled on the first day of trading, ending with a $1.2 billion market capitalization. We had recorded $1.8 million in revenue the year before. . MORE
There is a rarified brand of successful investors who can show average IRRs of 25 percent or greater over the years. MORE
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%. MORE
A consequence of using 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. MORE
Our equity IRR has averaged around 50% since inception. I’m intensely proud of both the amazing startup community in Boulder as well as the many significant companies that have been – and are being – created in the little town of 100,000 people I call home. I regularly talk about the ones we’ve invested in through Foundry Group, but this only covers a part of the awesomeness that is going on here as Foundry Group has a very tight thematic focus. MORE
As Bill points out, many funds are sitting on huge paper gains which translate into large TVPI, MOC, gross IRR, or whatever the current trendy way to measure things are. Bill Gurley wrote an incredible post yesterday titled On the Road to Recap: Why the unicorn financing market just became dangerous … for all involved. It’s long but worth reading every word slowly. MORE
What is an IRR? Not all that glitters is gold. William Shakespeare. For many entrepreneurs “raising money” has replaced “building a sustainable business” as their goal. That’s a big mistake. When you take money from investors their business model becomes yours. MORE
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. In the 21 st century it’s harder for large corporations to create disruptive breakthroughs. MORE
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. MORE
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. MORE
Dave Kerpen, founder and CEO of Likeable Local , just published an interview with me on Linkedin, which I’ve included below. He’s the #1 LinkedIn Influencer of all time in page views, ahead of Bill Gates, Jack Welch, Mark Cuban, and President Barack Obama. MORE
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). MORE
Another rule of thumb is a target of 50% IRR (a discounted cashflow calculation). If your startup desperately needs an investor, you may not care if the investor is a so-called “angel” investor, or a venture capitalist (VC). The money is the same color in either case. MORE
Are these deals best for the GP’s because they put fund in the black at the expense of great IRR’s ? The crossover fund has finally arrived. MORE
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). One of the world’s larger investors in venture capital recently shared data with us about the multiples they have made on over 5,000 companies they had stakes in via their LP investments in US VC funds. MORE
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). MORE
September 5, 2016: Some recent successful exits in Austin have caught my eye for the relative simplicity of their business models. Patient… Continue reading on Austin Startups MORE
IRR Related Topics Tim Keane
OCTOBER 19, 2016
It’s not very often that angel networks disclose results. Most of us are ready and willing to discuss our approaches, beliefs or methods, but usually stop well short of providing the proof of our assertions. Today, Golden Angels is publishing. Funding startups
Will Price
JUNE 18, 2007
The attached IRR Multiplication Table is a very useful reference tool. The data table calculates IRR by years (x-axis) and multiple (y-axis). Tags: IRR return calculations Dan O'Keefe , who I worked with at Pequot Ventures is the brains behind the spreadsheet.
Austin Startup
AUGUST 31, 2016
September 5, 2016: Some recent successful exits in Austin have caught my eye for the relative simplicity of their business models. Patient… Continue reading on Austin Startups
Up and Running
JUNE 17, 2013
And Internal Rate of Return (IRR)? Finance angel investment IRR ROI venture capital Flash: investors don’t believe your ROI projections. News at 11. Why is this news? It shouldn’t be. But recently I joined two other angel investor members of our local group in a conference call giving companies feedback on why they didn’t make the final rounds in our annual event.
Hippoland
NOVEMBER 13, 2016
A common intermediary milestone for most investors is IRR (internal rate of return) of the fund. So there are a lot of unrealized gains built into the IRR of an early fund. Furthermore, we’ve established that companies don’t get credit for revenue — this does not get factored into IRR calculations. IRR calculations are based on two things — changes in a company’s value and the time-scale on which this happens.
This is going to be BIG.
MAY 16, 2016
Sounds like a huge amount, but only later does he say that only " 476 funds which had known Net IRR values, the overwhelming majority of which were from vintage 2002, or more recently." 3) You can't eat IRRs for breakfast. You know what the IRRs of Quirky and Fab were before they went to zero? Looking at interim IRRs of young funds, especially during boom periods in venture isn't predictive of outcomes.
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.
A VC : Venture Capital and Technology
NOVEMBER 4, 2012
To measure the efficiency of doing this, we redefined profit not as dollars, yen or renminbi, but as ratios like RONA (return on net assets), ROCE (return on capital employed) and I.R.R. A Capitalist's Dilemma by Clayton Christensen. The Money Quote: The answer is that efficiency innovations are liberating capital, and in the United States this capital is being reinvested into still more efficiency innovations.
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.
Steve Blank
JUNE 11, 2013
What is an IRR? Not all that glitters is gold. William Shakespeare. For many entrepreneurs “raising money” has replaced “building a sustainable business” as their goal. That’s a big mistake. When you take money from investors their business model becomes yours.
Seth Levine's 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).
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.
This is going to be BIG.
JULY 30, 2015
So here's what the charts say for follow on strategies: If you run down the first column, what it says is that it basically doesn't matter if you follow on from an IRR perspective--a percent won't kill you here or there. Time is the enemy of IRR.
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). Too many entrepreneurs tell me they are looking for an investor, and can’t differentiate between venture capital (VC) investors versus accredited Angel investors.
Startup Professionals Musings
JUNE 5, 2016
VCs will be looking for a 10X return on their investment in 3 to 5 years, or 30% annual IRR (Internal Rate of Return). Too many entrepreneurs tell me they are looking for an investor, and can’t differentiate between venture capital (VC) investors versus accredited Angel investors.
Seth Levine's 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).
Startup Professionals Musings
MAY 9, 2014
There is a rarified brand of successful investors who can show average IRRs of 25 percent or greater over the years.
Feld Thoughts
APRIL 21, 2016
As Bill points out, many funds are sitting on huge paper gains which translate into large TVPI, MOC, gross IRR, or whatever the current trendy way to measure things are. Bill Gurley wrote an incredible post yesterday titled On the Road to Recap: Why the unicorn financing market just became dangerous … for all involved. It’s long but worth reading every word slowly.
Gust
NOVEMBER 1, 2011
Based on the Wiltbank Study, investors should expect a 27% IRR in six years. We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors. The Venture Capital Method (VC Method) was first described by Professor Bill Sahlman at Harvard Business School in 1987 in a case study and has been revised since.
The Equity Kicker
MAY 27, 2015
The definitive answer to these questions will come over time as our portfolio matures, our companies exit, and we can demonstrate a high cash to cash IRR. Fund managers are assessed, in part, on their ratio of expenses to assets under management.
Mark Birch
OCTOBER 9, 2012
VC venture capital IRR fund size asset class investing“One explanation for the correlations we’ve seen is that firms with the best deal flow and track records tend to be able to raise larger funds. In that case, the performance advantages they enjoy may be owed to their personal networks and not to fund size.” - “ Does Fund Size Matter? ” via NEA. An interesting counter-argument to the smaller is better debate when it comes to VC’s.
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%.
Startup Professionals Musings
APRIL 3, 2012
Another rule of thumb is a target of 50% IRR (a discounted cashflow calculation). If your startup desperately needs an investor, you may not care if the investor is a so-called “angel” investor, or a venture capitalist (VC). The money is the same color in either case.
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.
Christine.net
APRIL 9, 2012
Investors win either way - an instant 2X multiple on investment (and a crazy high IRR), or a highly desirable company that they believe has growth potential. Debate is already starting around Instagram's recently-announced acquisition by Facebook. e.g., Why the heck would Instagram sell a stake of its soon-to-be-acquired company to Sequoia (and Thrive, and Greylock, and Benchmark?) The reason is simple: playing chicken with a potential acquirer can drive a much higher valuation.
Venture Chronicles
JUNE 30, 2010
Over the past 10 years their quarterly internal rate of return (IRR)—the primary measure of VC success—was dismal, hovering in the single percentage points and sometimes dipping into negative territory. Tags: Uncategorized VC IRR This piece in HBR is must read, it details why there will be a lot fewer VC funds in the future. The sky is falling on the venture capital rainmakers.
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. *.
Inc Startups
JUNE 28, 2013
3) The IRR of the firm. Beyond IRR, look at the quality of the engineering talent on-boarded by graduates of the program. Not all incubators are created equal--and with more of them out there, you need to choose where you apply wisely. The age of the accelerator is officially upon us.
Up and Running
MAY 2, 2012
But don’t quote me a damned IRR. I’m writing this in the airport on my way to Austin, TX., where I’m going to be a judge at the University of Texas Venture Labs global business plan competition (used to be mootcorp). Between contests like this one and angel investment, I’ve heard two dozen or so business pitches lately. I’m talking about the 10-20 minute slide presentations and accompanying questions and answers. . Boring.
Inc Startups
MARCH 6, 2014
A consequence of using 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.
Dshen
AUGUST 10, 2016
Here they are below: Track record, increasing IRR, value of startups in portfolio to date. Some of our team and I were having a chat about what does it take to be an awesome investor. When I first started investing back in 2006, I was arrogant enough to think that, being a veteran from Yahoo and having worked on so many web products, that I was good enough to invest in internet startups.
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). One of the world’s larger investors in venture capital recently shared data with us about the multiples they have made on over 5,000 companies they had stakes in via their LP investments in US VC funds.
Steve Blank
AUGUST 5, 2014
I was on the way to my lifetime IRR of 90%. I met Kathryn Gould longer ago than either of us want to admit.
Up and Running
AUGUST 19, 2014
Forget the stupid IRR (that’s internal rate of return) that they taught you in business school. Got a question for one of the angel investors mentioned below? Skip ahead and leave it in the comments. Today is Ask an Angel day!
500 Hats
FEBRUARY 27, 2011
in fact, it is incredibly hypocritical and patently FALSE for the VC industry -- which has NEGATIVE IRR over the past 10 years, and historically poor performance -- to criticize high-volume strategies as being somehow crazy. again, it is tantamount to conspiracy that people who are failing miserably at venture capital investment with ridiculously poor IRRs are disparaging anyone else with a quantitative invesment strategy.
Feld Thoughts
JULY 31, 2013
Our equity IRR has averaged around 50% since inception. I’m intensely proud of both the amazing startup community in Boulder as well as the many significant companies that have been – and are being – created in the little town of 100,000 people I call home. I regularly talk about the ones we’ve invested in through Foundry Group, but this only covers a part of the awesomeness that is going on here as Foundry Group has a very tight thematic focus.
Seeing Both Sides
APRIL 10, 2011
Matrix had a fund in 1998 that yielded an eye-popping 514+% IRR. In May 1996, Open Market completed a successful IPO and more than doubled on the first day of trading, ending with a $1.2 billion market capitalization. We had recorded $1.8 million in revenue the year before. .
Fred Destin
FEBRUARY 16, 2011
Are these deals best for the GP’s because they put fund in the black at the expense of great IRR’s ? The crossover fund has finally arrived.
David Teten
SEPTEMBER 16, 2014
Dave Kerpen, founder and CEO of Likeable Local , just published an interview with me on Linkedin, which I’ve included below. He’s the #1 LinkedIn Influencer of all time in page views, ahead of Bill Gates, Jack Welch, Mark Cuban, and President Barack Obama.
Angel Blog
SEPTEMBER 13, 2010
When you do an Internal Rate of Return (IRR) calculation for an investor, the difference can be dramatic. Using the hypothetical example from the graphic above, an exit in 3 years at a 5x return works out to an IRR of 124%.
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