We Know the Savior

And It Is Them: The Future

Face(s) of Venture Capital
Brian Park, Erik P.M. Vermeulen

We Know the Savior

And It Is Them: The Future
Face(s) of Venture Capital
Brian Park, Erik P.M. Vermeulen

http://ssrn.com/abstract=2564040

Investors

Exit

VC

Portfolio Companies

The Challenge

Checking-In On VC
Over the Past Decade
62% of funds failed to exceed market returns after factoring
for fees, carried interest to GPs
Only 20% of funds produced returns that beat capital
markets by more than 3%
Of $30B invested in VC on annual basis, only $10B capable
of positive returns

Investment
committees and
trustees should
shoulder blame for the
broken LP investment
model as they have
created the conditions
for the chronic
misallocation of
capital.
-Kauffman Foundation

Venture Capitalists Get Paid

Well to Lose Money

VCs arent paid to generate great returns

VCs are paid very well when they underperform
VCs barely invest in their own funds
The VC industry has failed to innovate
-Diane Mulcahy

Maybe some
percentage thats
substantially larger
than 95 percent of VCs
add zero value. I
would bet that 70-80
percent add negative
value to a startup in
their advising.
-Vinod Khosla
Founding Partner of Kohsla Ventures

Dont get me wrong,

VCs as a group are
hard-working. But
there are some simple
ways for almost all VCs
to improve. Mostly, it
comes down to being
the sort of person that
other people want to
do business with.
-Ryan Caldbeck
Co-founder and CEO of CircleUp

Venture Capitalists

How can we distinguish the 20 percent or so venture

capital firms that Khosla cites that actually add value to
their portfolio companies from the wide majority of firms
that continue to occupy the venture capital space?

It Was
Certainly
Time to Get
Back to the
Drawing
Board

A Proliferation of Data Sources

mattermark

Identifying Innovation at VC Firm Level

Visibility

Innovation

Hyperactivity

Disruptive
Leanings

Prepping Our Model

Ensuring Level of Quality of Firms Analyzed
Closed a fund in the past 5 years
Made investment in past 6 months
Ensuring Comparability
Same timeframe (Pre-2000, Pre-Financial Crisis, Post-Financial Crisis)
Primary activity is VC and HQ is US
Sample: 276 venture capital firms, 1,580 funds, 15,012 deals from Q2
2009-Q2 2014

Assessment Criteria
Risk Appetite
Activity Level
Exit Performance

League Tables
1. Felicis Ventures
2. SV Angel
3. FLOODGATE Fund
4. First Round Capital
5. Harrison Metal Capital
6. SoftTech VC
7. Lowercase Capital
8. Sequoia Capital
9. Atlas Venture
10. RRE Ventures

11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

CrunchFund
Founder Collective
Lerer Hippeau Ventures
New Enterprise Associates
Khosla Ventures
Accel Partners
True Ventures
Greylock Partners
Freestyle Capital
Draper Fisher Jurvetson

Why Visibility Matters:

Shining Light On An Opaque Industry
-Fred Wilson
AVC.com
Union Square Ventures

-Bill Gurley
AboveTheCrowd.com
Benchmark Capital

-Hunter Walk
Homebrew.co

Homebrew

VCs Most Active Bloggers/Tweeters:

Both Young and Old

Visibility

1. Index Ventures
2. Kima Ventures
3. Balderton Capital
4. Advent Venture Partners
5. Sofinnova Partners
6. Holtzbrinck Ventures
7. Alven Capital Partners
8. Northzone Ventures
9. DFJ Esprit
10. Episode 1 Ventures

Why Hyperactivity Matters:

Aligning Incentives

Hyperactivity

Why Disruptive Leanings Matter?

Becoming A Trusted Partner

Union Square Ventures

Opportunity Fund
Revamping term sheets to align
incentives
Andreessen Horowitzs One Stop
Shop
Upside Partnerships profit
sharing scheme with its
portfolio companies
Deviations from 10-year fund life

Legal Terms: From Downside Protections to

Balanced Incentive Structures

VC Platforms

Institutional Investors

Entrepreneurs/startup companies

Institutional Investors

Entrepreneurs/startup companies

Institutional Investors

1%

99%

Entrepreneurs/startup companies

One-Size-Fits-All Approach
Investor
s-limited
partners

Management
Company

Genera
l
Partner

Limited Partnership

Stock,
Commodities
, Cash

Mature
private/pub
lic
companies

High
potential
start-ups

Alternative Investments

More skin in the game

More skin in the game

Co-investment rights

More skin in the game

Co-investment rights

More investor favourable compensation arrangements

More skin in the game

Co-investment rights

More investor favourable compensation arrangements

Different fund structures (depending on the investors)

Hes trying to create another iteration of the

venture capital model"
Pieter thiel

e.p.m.vermeulen@tilburguniversity.edu