Comment by lpolovets | Hacker News Reader

Comment by lpolovets | Hacker News Reader

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> Put to simple terms: USV didn't grow fast enough and are now stuck in the middle. They cannot do enough (small) deals to leverage an average of their bets and on the other hand side, entrepreneurs are much smarter.

You're making it sound like USV is struggling or becoming extinct, but my impression is that they're actually doing incredibly well.

First, they're considered one of the best Series A firms in terms of financial returns. See: http://fortune.com/2011/06/06/venture-capital-returns-the-be...

Second, they have an amazing reputation among founders. Check out the following survey, where USV was ranked 2nd out of 64 Series A firms in terms of who people wanted in their Series A round: https://www.cbinsights.com/research-venture-capital-series-a...

Finally, I'm pretty sure I've read this in several places, but USV is not "stuck" in the middle. I'm positive that if they went to the market and tried to raise $500m, the market would oblige happily. It's more that they've found their fund size sweet spot -- their product/market fit, if you will -- and have little desire to raise a lot more money and become a larger firm. A lot of funds do this: they raise larger and larger funds for a while, then stabilize once they find a fund size that works well for them.

Well, the discussion moved to the performance of USV from a much more general POV on the rhetorics of their industry.

> First, they're considered one of the best Series A firms in terms of financial returns. See: http://fortune.com/2011/06/06/venture-capital-returns-the-be....

This one is interesting as well / much more recent: https://www.cbinsights.com/blog/union-square-ventures-exits-...

> Second, they have an amazing reputation among founders. Check out the following survey, where USV was ranked 2nd out of 64 Series A firms in terms of who people wanted in their Series A round: https://www.cbinsights.com/research-venture-capital-series-a....

To be honest, I wouldn't much count on surveys of this sorts. People always refer to what they know....

My general sentiment shouldn´t be USV in in struggle - still, I would stick to the point that Series A VCs have problem, if they are not top in class (in terms of fund size). It´s a matter of probabilities and USV can just do less of deals...

Yeah, I agree with you on the challenges of being a Series A VC. If you are in the top 5-10 funds and have a great brand then you're set -- at least for the next 5-10 years. If you're #15 or #30 then it's a struggle and you starting experiencing a lot more adverse selection.

> You're making it sound like USV is struggling or becoming extinct, but my impression is that they're actually doing incredibly well.

No venture fund is doing "incredibly well" unless they return an IRR of at least 20-30% per annum. For a $175m fund, that means turning the initial $175m in approx. $455m. over 8 years (i.e. 3x, at 20% IRR). Frankly, almost no fund succeeds in doing that.

In the case of USV, doing it once doesn't mean they'll be able to do it again. I'm curious to see if their next fund will be able to do as well as their first. Respect if they can they keep making those kinds of returns by investing in startups though. It is incredibly hard, there are much easier ways to make money.

Here's a public doc that shows returns for a few USV funds: https://www.oregon.gov/treasury/Divisions/Investment/Documen... (search for "union square" in the PDF)

Union Square Ventures 2004 -- 67% IRR

Union Square Ventures 2008 -- 28% IRR

Union Square Ventures 2012 -- 42% IRR

('04 is particularly impressive because it was 14x fund at the time that the linked PDF was written)

The people who decide what is "incredibly well" are the institutional investment consultants, e.g. Cambridge Associates, who advise the actual investors in venture (and every other asset class) what is going on in reality.

The yardstick is not absolute. It's not even relative to numbers that consumers / the public (you?) generally see.

It's relative to all the other venture funds (typically grouped by vintage year) and relative to the other asset classes to which an investor might allocate -- modified by the historical and projected covariances among them.

To make it concrete: 20% IRR might be "incredibly well" in some vintage years (say, 2000?) but it might be "median" in some other vintage years (say, 1995?).

And (despite everyone saying they only want top quartile managers for everything, just like Lake Woebegon's children) a rational institutional investor might well look at venture in a period where it's been lagging the public markets, and decide it's quite rational and profit-maximizing to keep allocating to it, precisely because it doesn't march in lockstep with the other asset classes.

(And, agreed: there are much easier money games to play and venture is decidedly a "get rich slow" scheme.)

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