The catch? Angel Investors wait in the wings until you reset your game they only give a benefit once you have reset the game. So 1 Angel Investor will give you an overall profit increase of +2%, 2 AI = +4% overall profit and so on. © 2014 Strategic Exits Corp.Angel Investors increases all of your profits by 2% (This bonus can be increased with some upgrades). This is also a main theme in my upcoming book " Early Exits - Exit Strategies for Entrepreneurs and Angel Investors - But Maybe Not VCs." It means that if company has venture capital fund investors, they will almost certainly block an opportunity to sell the company unless the price gives the VCs a 10 to 30x return.įuture posts will explain how venture capital funds block good exit opportunities and what this means for the exit timelines in VC backed companies. This minimum acceptable return has profound implications for entrepreneurs and angel investors. A VC Won't Let You Sell for Less Than a 10x to 30x Return to Them What is important here is how the VC fund managers think, and act. It’s much more probable that a fund will have one 10x exit and one 100x exit. Of course, a successful venture capital fund is not likely to have exactly two 30x exits. From the VC partner’s perspective, this effectively guarantees they have failed. They don’t get a chance to invest it again. If they make an investment and exit for a 3 to 4x return, they have to give the principle and gains back to the venture capital fund's investors. This means that the fund managers only get to invest the money once. And Most VCs Only Get to Invest the Capital OnceĮven more interesting is that a traditional venture capital funds are usually limited partnerships. If you are not familiar with the math behind an investment portfolio, I hope you will spend a few minutes with a spreadsheet so you are comfortable with these numbers. This math is simplified but it’s more than accurate enough to illustrate this important point. This means that those two winner investments have to make a 30x return (on average) to provide the venture capital fund a 20% compound return – and that’s just to generate a minimum respectable return. This is set by the expectations of the investors in VC funds, the relative risk levels compared to other investment classes and the performance achieved by other venture capital fund managers.Īnother way to look at this is that a ten-year venture capital fund needs to repay investors six times (6x) their investment. The Minimum Respectable Return on a VC Fund is 20% per yearĪ minimum 'respectable' return for a VC fund is 20% per year. Statistically, if a VC makes ten investments, two will be winners and create most of the gains in the fund.
This is just a statistical fact - a law of nature. In a typical VC portfolio, most of the returns are from 20% of the investments. In a Typical Fund the Returns are From 20% of the Investments This post is a high level summary of how the math works for a typical venture capital fund. Peter Rip of Leapfrog Ventures describes some of the math behind venture capital funds in a fascinating post titled ‘ Traditional Venture Capital Sure Seems Broken – It's About Time.’ It provides some outstanding insight into how the math behind venture capital funds affects the way venture capital fund managers make investments and how they behave after they invest. This post describes the second key element. That post provides one important piece of data necessary to answer the really important question of why the size of venture capital funds matters to angel investors and entrepreneurs. My previous post was titled Venture Capital Firms Are Too Big. Venture Capital Funds - How the Math Works Why the Size of Venture Capital Funds Matters to Angels and Entrepreneurs