Venture Capital Funds

What an LP position in a venture fund actually is, how fund returns are made, how a fund is valued, evaluating one specific fund, its risks, costs and taxes, and where venture exposure fits in a portfolio.

Backing the people who back startups

Lessons

• You are not buying startups. You are signing a ten-year promise to a manager. — An LP commitment in a venture fund is a legal obligation to hand over money when asked, for about a decade, to someone who decides everything about how it is used. (10 min)
• One company usually carries the whole fund — Venture returns come from a handful of outliers, and the fund's own fees and carry take a large slice before the LP sees anything. (13 min)
• A fund's value is mostly an opinion until something is sold — Venture funds report a net asset value built on the GP's own marks. Only distributions are cash, which is why DPI and TVPI tell very different stories. (11 min)
• Appraising one fund: the manager, the finished track record and the fit — Evaluating a venture fund is mostly evaluating a team and whether their past results came from something repeatable. (14 min)
• A decade locked up, a fifth of it paid in fees, and a tax treatment set by the structure — The main costs of a venture fund are illiquidity, fee drag that compounds, and taxes that depend on where you live and how the fund is set up. (12 min)
• A small, patient slice spread across years, or nothing at all — Venture funds can suit a small part of a large, stable portfolio held across several vintages. For most investors they are an optional extra, not a core holding. (9 min)

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