I've been trying to understand the very basics of venture capital, as a relative finance-illiterate. Some stuff I've learned from looking at return on investment numbers:
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So the first question I asked is the dumb-and-obvious one: "do VC's, as a class, actually do any better than an index fund?" The answer, reassuringly, is yes; there's a lot more variance in VC returns, but in the long run early-stage VCs make about a 20% yearly return.
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VCs as a class have about the same internal rate of return as Berkshire Hathaway https://www.berkshirehathaway.com/2018ar/2018ar.pdf …, a standard example of a very good investment firm.
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An exceptional single *company* can have a higher rate of return, though: Amazon has been growing at an average rate of 36% a year since it IPO'd. If you had to pick between being Jeff Bezos and being a typical VC, on purely money grounds, you'd want to be Bezos.
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It's apparently possible to be a VC firm that raises large funds and underperforms; DCM Ventures is in the top 10 firms for largest funds raised and the IRRs I could find are as follows: DCM II: 0.20% DCM III: 2.1% DCM IV: 4.89% DCM V: 18.69% DCM VI: 3%
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10 seems seems way too high! The long term rate of return I think it was 6-8% depending on how one adjusts for inflation. But maybe if one doesn't include recessions it's higher, but recessions even if a fraction of the total number of years, have large negative returns
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ah, that was without accounting for inflation: source here https://www.berkshirehathaway.com/2018ar/2018ar.pdf …
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