That looks pretty good to me. One dumb math question: when is a good time to compare against something like an S&P benchmark and should annualized rates or absolute growth be compared? In other words, is Fund I "cashed out" now, or could it's 44% return go up? Just doing simple math, adding 1 year to a CAGR calculation and doubling the FV of Fund I from 12B to 24B, seems to jump the return rate only to 48% from 44% (even though that more than doubles the profits). So would it be better to compare the absolute growth of the S&P to the growth of a fund, instead of the rate of return?
Venture funds typically take 10-15 years for the investments to cash out. It's been close to 10 years for fund II, but I believe they invested in Foursquare and AirBnB, so depending on how those companies do it could change their returns.
In general, it's hard to answer questions based on this chart. In addition to IRR, VC funds are judged on two other key numbers:
TVPI (Total Value to Paid In) which is the total value of all of the fund's investments divided by the capital LPs have put into the fund, both realized and unrealized. For the latter, LPs will often look at the investments themselves and make their own determination of value. Especially in this environment, many funds have investments in unicorns that are inflated and never end up being realized. A fund with a $800m TV may not actually look great if a large % of that is in WeWork and is based on a $40B valuation. This is also the case for IRR.
DPI (Distributions to Paid In) which is the total amount of cash a VC fund has sent to LPs divided by the amount of the LPs paid into the fund. At the end of the day, this is the most important number as it's what the fund's investors make, but it can take 10-15 years for a fund to completely distribute everything, so it's not that useful unless the fund has been around a long time.
Well, once cash is returned to the investor, using cash returned on the initial capital base to calculate a compound annual return is the best way. This would allow you to compare the fund’s return to a public market index over the time period. Before this happens, there is no best or one way.
