How Do LPs Measure Performance of a VC Fund

Reporting on fund performance is best compared to an onion or a Russian nesting doll: as you move away from the center, you’re dealing with progressively wider circumstances.

What are the essential parameters that every early-stage venture fund manager should keep track of in order to compare their fund’s success to those of other early-stage venture funds? When submitting a report to the fund’s limited partners, what information do I need to include?

The greatest analogy for reporting on fund performance is an onion or a Russian nesting doll: You’re addressing larger situations as you work your way outward from the center:

  • The question of how a given investment performed in a particular round is at the heart of the matter.
  • Then there’s the company’s performance.
  • Then there’s the performance of your total fund.
  • Then there’s the question of how the fund stacks up against similar VC funds from the same era.

Finally, how do those VC vintage returns stack up against broader market averages—the returns your LPs might have gotten from less risky, more liquid investments?

Different LPs may have different levels of tolerance, forgiveness, and attention to detail, but this is a highly well-quantified company with very little room for error in terms of performance and reporting. This talk presents a high-level summary of what good performance looks like in general.

You’ll concentrate on changes to the inner rings in your day-to-day, quarter-to-quarter reporting: new rounds, new firms, updated valuations, and fund performance since the last report. However, in the venture capital market, your micro-reporting is always done in a macro context. This is a highly quantitative business, and numerous rating organizations, such as Cambridge Associates, will constantly compare you to other early-stage venture funds and bigger markets. And, over time, how you fare in those comparisons will determine your fundraising success.

Let’s look at a menu of possible items for a normal quarterly or yearly report to help you figure out how to create your report. The report will be tailored to each LP’s individual holdings, but key “fund summary” aspects will be consistent across all LPs, so we’ve organized it that way. This list is meant to be rather extensive for educational reasons, so you may not need to include every item in your final report design.

All regular statements and all LPs have the same “Fund Overview” elements

Portfolio Business Updates: A section of the report with brief written updates on each company (may be towards the conclusion of the report, but must include firm name, website, industry, brief product description, and a paragraph providing an update on the company’s situation).

  • Investment Basis and Current Valuation of the Fund
  • Total (fund holdings) Value to Paid-In Capital at the Present
  • Value change in the last quarter (qtr) and year to date (ytd)
  • If liquidated at current market value, the IRR is
  • Paid-In Capital Residual Value
  • Cash Returned in Total
  • Paid-In Capital was distributed.
  • Cash Returned + Valuation
  • Multiple Exit Combinations
  • IRR total from all exits to date.
  • All new companies or funds, new rounds, amount invested, amount returned, were all added to the portfolio holdings throughout the quarter.
  • Per firm, a percentage of the fund’s worth
  • Transactions in the third quarter of
  • Each year’s investments and returns
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