Multiples vs IRR

VC Confidential

One of my most popular posts from VC Confidential… “You Can’t Eat IRR.” The post Multiples vs IRR appeared first on Something Ventured. ” — anonymous I was at a business school today helping judge several business plans.

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Golden Angels Announces IRR Results

Tim Keane

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

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IRR Multiplication Table

Will Price

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.

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The IRR of Simplicity

Austin Startup

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

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Investors: Don’t believe your ROI projections

Up and Running

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.

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Do most angel investors make money?

Gust

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.

How do VCs measure their success (and why you should care)?

Hippoland

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.

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As a VC or angel investor, how has your approach to investing changed over time?

Gust

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.

The VC "Homerun" Myth

Possible Insight

The base case was 42% IRR and a 3.7x The results for the three scenarios are: 42% IRR, 2.7x 36% IRR, 2.4x 29% IRR, 2.1x Even if you exclude anything that could be remotely considered a homerun, you’d still get a 29% IRR! As you can see, the multiple goes down more quickly than the IRR. Large exits take longer than small exits so when you exclude the large exits, you get lower hold times, which helps maintain IRR.

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6 Reasons Startups Need All Angels Plus Crowd Funding

Startup Professionals Musings

There is a rarified brand of successful investors who can show average IRRs of 25 percent or greater over the years.

5 Ways Today’s Market Allows Startups To Scale Faster

Startup Professionals Musings

Investors measure their success by looking at the internal rate of return (IRR). As an active angel investor, I’m accustomed to hearing entrepreneurs pitch their expectation to quickly create a new dominant brand, based on their disruptive technology.

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Intel Disrupted: Why large companies find it difficult to innovate, and what they can do about it

Steve Blank

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.

Why Companies are Not Startups

Steve Blank

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.

Venture Funds as Products. What We Changed for Homebrew III.

Hunter Walker

Our J Curve and early IRR may look worse than other funds. “What did you change about Homebrew III to better fit ‘seed phases’ versus seed rounds ?” a fellow VC asked me after my previous post. That’s a great question!

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Fund Raising is a Means Not an End

Steve Blank

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.

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Fund Raising is a Means Not an End

Steve Blank

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.

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The Trouble with Venture Capital Data

This is going to be BIG.

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.

5 Things Startups Can Learn from Angel Investors

Up and Running

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.

7 Criteria To Help Startups Find The Right Investor

Startup Professionals Musings

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.

Venture Outcomes are Even More Skewed Than You Think

Seth Levine's VC Adventure

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).

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Venture Outcomes are Even More Skewed Than You Think

Seth Levine's VC Adventure

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).

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Top Ten Ways to Multiply a Megafund?

Florida Venture Blog

Those are very big funds to try multiplying and deliver venture capital-type IRRs. If a 40% IRR requires 10X returns over 7 years, that would require $20B+ in returns over that period. My guess is $20B is virtually impossible to reach so either time horizons are shortened or IRR expectations are lowered. The Thomson/NVCA report on Q2 venture fund raising is out and the numbers are big. In the quarter, fifty venture capital funds raised a total of $11.2 billion.

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Why you should never have a data room — the most counter-intuitive fund-raising advice you’ll ever…

Both Sides of the Table

Or if you’re a VC raising from LPs you have to list all of your deals, your investment value, your carrying value, your multiples, your IRRs, TVPIs, DPIs, etc along with net cashflows plus your previous LPAs. Why you should never have a data room?—?the

A Closer Look At The Quality Of Angel Returns Data

David Teten

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. I previously published this at Techcrunch. .

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Angel Investors Are Still The Lifeblood Of Startups

Startup Professionals Musings

There is a rarified brand of successful investors who can show average IRRs of 25 percent or greater over the years.

Angel Investment Criteria

SoCal CTO

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 Bob is talking about investing in a much smaller exit, with no future investment planned.

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Cost ratios as a measure of fund efficiency

The Equity Kicker

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.

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VC:VC Haikus

Venture Cyclist

IRR triumph. IRR : Internal Rate of Return: a standard measure of Venture Capital fund performance.). I love the Haiku form … the constraints force you to find the perfect words and to trade off one word for another. I felt only a Haiku could capture a mystery that was presented to me, and solved a moment later, during my wonderful ride with friends on Sunday morning. Bright red mess ahead. Dead squirrel in biker’s path? Smells rise: fries, ketchup.

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Crowd Funding Has Not Killed Angel Investing Yet

Startup Professionals Musings

There is a rarified brand of successful investors who can show average IRRs of 25 percent or greater over the years.

What to Expect When You're Expecting Venture Capital Returns

This is going to be BIG.

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.

Valuations 101: The Venture Capital Method

Gust

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.

How Smart Entrepreneurs Select VC / Angel Investors

Startup Professionals Musings

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.

Why Entrepreneurs Seem to Be Growing Fangs

Seeing Both Sides

All fine and dandy – but where’s my liquidity?!” 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!

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Fundraising Hacks for Venture Capital and Private Equity Funds

David Teten

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%.” Historically, the process of winning capital from limited partners has been opaque. However, in the last few years a few have started to use social media and become more transparent. I particularly like OpenLP.com, SuperLP.com, and the Origins podcast.

What I'm Reading This Sunday Morning

A VC : Venture Capital and Technology

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.

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Return profile of VC investments shows why home runs are key

The Equity Kicker

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.

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More Cash for Entrepreneurs, Crowdfunding, and Indiegogo

David Teten

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. *.

Current Startup Market Emotional Biases

Feld Thoughts

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.

5 Ways to Vet an Incubator

Inc Startups

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.

Qualities of an Awesome Investor

Dshen

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.

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