article thumbnail

IRR is a vanity metric

VC Adventure

I’m observing that IRR is a metric that is becoming an increasing focus in venture, replacing fund return multiple as the key metric of success. I understand the draw of IRR, and – as a fund draws to a close – there’s no question it’s an important metric. But that doesn’t seem to be stopping funds or LPs from touting IRR as the gold standard for evaluating relative fund performance. Recycling hurts IRR.

IRR 116
article thumbnail

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

IRR 60
Insiders

Sign Up for our Newsletter

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

article thumbnail

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

IRR 48
article thumbnail

Israeli VC Funds Struggled to Raise in 2009

VC Cafe

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%. Tags: Carmel Ventures Israel Israel seed Sequoia Israel Startvest 09 TriVentures Venture Capital Funds carmel ivc ivc online sequoia E IRR

IRR 70
article thumbnail

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.

IRR 71
article thumbnail

Resetting venture capital return expectations: is 10x the new 3x?

Version One Ventures

3x the invested capital net of fees over a period of about ten years for a net IRR in the low twenties). When I started Version One Ventures in 2012, every experienced VC shared the same rule of thumb: we had to return 3x net consistently to stay in business (i.e.

article thumbnail

7 Considerations In Choosing A Startup Funding Source

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.

article thumbnail

6 New Venture Realities To Target Your Funding Effort

Startup Professionals Musings

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

IRR 355
article thumbnail

What Does the Post Crash VC Market Look Like?

Both Sides of the Table

IRRs work really well in a 12-year bull market but VCs have to make money in good markets and bad. At our mid-year offsite our partnership at Upfront Ventures was discussing what the future of venture capital and the startup ecosystem looked like.

Marketing 416
article thumbnail

How’s Venture Capital Changing in 2023

VC Cafe

IRR (on average) over a 15-year horizon, Venture continues to outperform other long-term asset classes. Taking stock of the venture capital market in 2023, it’s clear to see that we’re in a transition point.

article thumbnail

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.

article thumbnail

7 Entrepreneur Questions To Select The Ideal 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.

article thumbnail

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.

article thumbnail

10 Reflections After 10 Years of NextView

View from Seed

One industry specific example is the strange fascination among some LPs and GPs around term IRR. Even though everyone knows that VC funds take 10+ years to come to fruition, one often can’t help but benchmark themselves based on IRR in the early days. Early on, I sweated the fact that our early funds had pretty “meh” IRR in the first 3-5 years. A few weeks ago, we hosted a small dinner for a number of portfolio company founders, LP’s, and friends of the firm.

IRR 205
article thumbnail

How is the VC Asset Class Doing?

View from Seed

The longer the portfolio maintains the same value without distributing back cash, the worse the fund’s ultimate IRR. This equates to something in the neighborhood of a 10% IRR, which isn’t great given the illiquidity of the asset class and strength of the public markets.

LP 256
article thumbnail

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.

IRR 48
article thumbnail

2 1/2 Angel Investing Mistakes You Can Easily Avoid

Hunter Walker

I never really tracked IRR or net returns, but I did pay close attention to ‘lessons learned.’ I Made These Mistakes A Few Times But You Don’t Need To. Part of successful angel investing is picking winners. Another part is avoiding picking losers.

IRR 151
article thumbnail

How Covid-19 Has Impacted VC Portfolios

View from Seed

This may not hurt the ultimate exit value of these companies, but the passage of time will hurt the fund’s ultimate IRR. One topic of conversation among VC’s over the last few months is how their portfolios are faring during the Covid pandemic.

Portfolio 215
article thumbnail

VC Fund Returns Are More Skewed Than You Think

VC Adventure

IRR will depend on the timing of cash flows but as a quick rule of thumb, venture funds look to return at least 3 times the invested capital – after fees, so more like 3.5x

IRR 174
article thumbnail

10 Reflections After 10 Years of NextView

View from Seed

One industry specific example is the strange fascination among some LPs and GPs around term IRR. Even though everyone knows that VC funds take 10+ years to come to fruition, one often can’t help but benchmark themselves based on IRR in the early days.

IRR 156
article thumbnail

Why Companies are Not Startups

Steve Blank

They include: return on net assets ( RONA ), return on capital deployed, internal rate of return ( IRR ), net/gross margins, earnings per share, marginal cost/revenue, debt/equity, EBIDA , price earning ratio, operating income, net revenue per employee, working capital, debt to equity ratio, acid test, accounts receivable/payable turnover, asset utilization, loan loss reserves, minimum acceptable rate of return, etc. (A

Startup 335
article thumbnail

10 Reflections After 10 Years of NextView

View from Seed

One industry specific example is the strange fascination among some LPs and GPs around term IRR. Even though everyone knows that VC funds take 10+ years to come to fruition, one often can’t help but benchmark themselves based on IRR in the early days. Early on, I sweated the fact that our early funds had pretty “meh” IRR in the first 3-5 years. A few weeks ago, we hosted a small dinner for a number of portfolio company founders, LP’s, and friends of the firm.

IRR 136
article thumbnail

Playing the Long Game in Venture Capital

Both Sides of the Table

as measured by MOIC, TVPI and IRR and by sources that don’t reveal the underlying data and who themselves have to rely on incomplete datasets. Silicon Valley and the media industry that surrounds it values youth.

article thumbnail

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. ———– One of my ex students came out to the ranch to give me an update on his startup. When I asked, “What are you working on?” the first words out of his mouth was his fund raising progress.

IRR 332
article thumbnail

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. Entrepreneurs who require funding for their startup have long counted on self-accredited high net worth individuals (“angels”) to fill their needs, after friends and family, and before they qualify for institutional investments (“VCs”).

article thumbnail

As a Seed Investor, Do I Want Softbank to Invest In My Best Companies Or Not?

Hunter Walker

You’re basically along for the ride with an investor who has very different incentives than you do – a different time frame, the AUM business vs IRR business, and requiring a scale in outcome that’s just astronomical. Oh boy, conference season in the venture world and one enduring question this year has been “What to do about the Vision Fund?”

IRR 99
article thumbnail

Venture Outcomes are Even More Skewed Than You Think

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). The typical “successful” venture portfolio is often described as having the following outcome: 1/3 of companies fail. 1/3 of companies return capital (or make a small amount of money). 1/3 of companies do well.

IRR 133
article thumbnail

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. Entrepreneurs who require funding for their startup have long counted on self-accredited high net worth individuals (“angels”) to fill their needs, after friends and family, and before they qualify for institutional investments (“VCs”).

IRR 186
article thumbnail

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. If you're following on in the A round, then you shed a full 500 basis points on your IRR. Well, clearly the dollars are much better--which is nice for VCs who get a cut of the dollar profits (as opposed to being paid on IRR). Time is the enemy of IRR.

article thumbnail

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. Entrepreneurs who require funding for their startup have long counted on self-accredited high net worth individuals (“angels”) to fill their needs, after friends and family, and before they qualify for institutional investments (“VCs”).

article thumbnail

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. They argue that the color of the money is the same from either source.

article thumbnail

Venture Outcomes are Even More Skewed Than You Think

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). The typical “successful” venture portfolio is often described as having the following outcome: 1/3 of companies fail. 1/3 of companies return capital (or make a small amount of money). 1/3 of companies do well.

IRR 122
article thumbnail

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. Disruptive innovations are coming from startups – Telsa for automobiles, Uber for taxis, Airbnb for hotel rentals, Netflix for video rentals and Facebook for media. What’s holding large companies back?

IRR 227
article thumbnail

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.

article thumbnail

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. ———– One of my ex students came out to the ranch to give me an update on his startup. When I asked, “What are you working on?” the first words out of his mouth was his fund raising progress.

IRR 224
article thumbnail

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. In the past, such statements have been credibility red flags, since “everyone” knows that a dominant brand takes decades to establish and scale. Only recently, I realized that times are rapidly changing.

IRR 141
article thumbnail

VC investors: Don’t be greedy even if you can.

Berkonomics

You will not be moving your IRR needle enough by grabbing a few extra dollars in a marginal sale, but you will incur the wrath of a number of stakeholders who would be more than willing to spread the word far and wide about your greedy ways.

article thumbnail

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. .

IRR 114
article thumbnail

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.

Valuation 161
article thumbnail

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.

Equity 150
article thumbnail

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 the most counter-intuitive fund-raising advice you’ll ever get I’m about to offer you some fund-raising advice that flies directly in the face of what most conventional wisdom will tell you.

Cap Table 335
article thumbnail

7 Key Drivers to the Best Investor For Your Startup

Startup Professionals Musings

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. But I have found that making the right choice at the right time can have a major impact on your long-term valuation, and the decision process is complex. The basics are simple.

IRR 246
article thumbnail

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. They argue that the color of the money is the same from either source.