Interesting to see a firm number quoted on the target returns:
> What is a mediocre return?
> Anything less than three times your money over a 10-year period.
Fwiw, that's equivalent to around 12% annualized.
> What is a mediocre return?
> Anything less than three times your money over a 10-year period.
Fwiw, that's equivalent to around 12% annualized.
It's my understanding that VC works in a manner similar to PE, where investors are given their returns when the entire fund they invest in is run down. Each fund has a vintage, so if you invest in the 2006 fund you might get paid back 7 years from then in 2013, that's kind of a long time.
For a liquid asset class to compare to, equities have done something like 6-6.5% real historically.
I suppose going forward it mainly depends on what you think will happen to the stock market. Will the next 20 years see the resumption of the WW2-through-1990s performance level, or will they look more like the past 20 years, with middling to flat returns? If the latter, VC might become attractive at even lower returns compared to anemic returns in "regular" equity, but if the former, then it may become less attractive compared to a more liquid and diversified stock portfolio.
Also, to really calculate the return you should consider the method which VC funds call and return capital. It's not as though they just take the full amount on day one and return the gains (or losses) at the end of year 10. They have several transactions throughout the life of each fund.