VC’s make a lot of money, right? WRONG

A very sobering blog post from Fred Wilson, principal at Union Square Ventures: he tallied the results for VC funds over the last ten years and found that the returns aren’t all that great. The data comes from Cambridge Associates and spans tech, biotech, cleantech and other areas, and Wilson feels it does a goed job of representing the overall performance of the VC business in the US.

Says Wilson: “there are no venture capital returns in this set of numbers that break the double digits. When I got into the business in the mid ’80s, I was schooled that you needed at least 20% annual returns to the limited partners (ed: the big players like sovereign wealth funds, pension funds, etc. that give money to VC’s to invest) to stay in the business.”

The numbers start from after the dotcom bubble burst:

It seems you’re better of investing in the NASDAQ Composite than giving money to a VC. Life is hardest for early stage funds. Early stage funds have it particularly rough: they have to digest a lot of startup failures and really need occasional big wins to stay afloat. But later stage investing also has its handicaps, says Wilson: “You can pick winners in that business more easily. But so can everyone else. Each deal is an auction and the winner pays the highest price.”

If you have an idea why the returns for VC are so low, let us know. Are there too many VC’s? Is is just the economy?  

[][Photo: the dark world of Fred Wilson, Flickr, Lachlan Hardy]

Powered by Facebook Comments

About the author

Raf Weverbergh

Editor of whiteboard. Raf Weverbergh was a magazine journalist whose work appeared in magazines like Rolling Stone, Playboy, Mail on Sunday, Publico and South China Morning Post. He is the co-founder of FINN, a corporate communications agency where he advises startups and multinationals on their PR and Mustr, the easiest media database for PR professionals. You can contact him on Twitter, Linkedin or Skype (rafweverbergh).

Related Posts