PitchBook just released their venture capital performance benchmarks

One thing is for sure - It’s more important than ever to access the top decile (10%) of venture capital firms!

As the image shows the “median IRR” (yellow dot) for VCs is lacklustre in comparison with the public markets.

Locking in for 10-15 years with few liquidity options makes little sense when the Nasdaq 100 (QQQ) has annualised returns of ~ 16% over the last 15 years!

Public markets offer daily liquidity & exposure to the world’s largest tech companies that are expected to continue to swallow market share

A nuanced advantage of allocating to VC vs. Public markets is that you’re inadvertently *forced* to stay locked in for 10-15 years!

The “time invested” is the MOST important factor in compounding returns & ironically human nature often takes over when daily liquidity is possible with most exiting too early!

That said, the BEST VCs will remain triumphant...BUT defining TOP is important…

It’s become common nomenclature to refer to “top quartile” as what investors should aim for though as the data shows it’s the top 1-10% that really move the needle on returns!

Allocators should take note of the startling difference between the top quartile (top of the dark blue rectangle) & top decile (the light blue rectangle) returns.

This difference in the return is significant & demonstrates why building strong networks with the best firms & individuals is so critical. Access is everything.

The chart illustrates that the decade between 2010-2020 catapulted the VC asset class to new heights with IRR’s hitting 30-40%!

It seems 2022 is the year of rebalancing (analogous to what we have seen in public markets), with many believing that 2023/2024 VC vintages will be some of the best!

It’s helpful for angels, family offices & LPs to keep on top of these benchmarks to refine their allocation strategies.

Right now is a great time to allocate to venture capital — as Buffett says “It’s important to be greedy when others are fearful & fearful when others are greedy”

The world’s largest companies today were venture-backed in turbulent economic climates (Apple, Google, Amazon, Nvidia, Meta, etc)!

An important caveat: IRR shown here is “unrealized” IRR, which likely includes valuations that may never be reached. (IRR is the annualized return that a fund generates, or expects to generate over the duration of the fund).

We know that DPI (distributed capital) is what REALLY matters!