Value in Investing in an Venture Fund …

Selling is the willing exchange of value

In the product or service space, those have value to a buyer [your customer], and, in return, the value you (the seller) gets is … money.

In the investment space, whether it’s a deposit in a bank, a mutual fund, or …

a direct investment in s startup, or as a Limited Partner investing in a venture fund, the same applies.  You give a startup or venture fund some money, after some time they give you some back. But how much represents value?

Well, for starters, you’d expect returns that are commensurate with the risk you’re taking. For the past 50 years, investing to stocks, through the S&P500, would have returned you 8%. And an investment in a single business, or even a portfolio of ten or twenty companies, is certainly riskier, and deserves much higher returns. Thirty years ago, the target IRR for venture funds was 20%-22%. Today, 12%-15% is a common minimum. But only the top 25% of funds achieve this minimum.

So, when looking at the value you’d get from an investment, in a venture fund, there are only two answers you need: (1) what IRR* will they return, and (2) what do they have that will put them in the top 25% of fund managers?

*And if they answer in multiples, run …. you are dealing with ejits.

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