Fred Wilson’s got a fascinating post about his history of investments over at Union Square Ventures. Of course he’s got every reason to post his results, which appear to be exceptional although he has left out a key factor in his little analysis, which is time. I note over there:
Fred, these are impressive results and to my understanding much better than average VC returns, which are negative, right? Don Dodge posted min-analysis some time ago where he wound up concluding there was a lot more VC failure than is normally thought.
There are elite guys like you and Jeff Clavier who “beat the averages”, but isn’t “making money” with startups an unrealistic expectation, since those VCs and companies that succeed are still around to talk, but those who fail are not blogging about the burgers they now flip to pay the bills?
I’m also noting that without “time” as a factor the return is not meaningful. 3x is easy….if you use a 15 year horizon!
At a very modest annual return of 7.33% one would expect to triple an investment in 15 years. A 10% return will leave you with 4.5x your initial investment in that same time frame. More dramatically, if time is not a factor then I’m happy to guarantee you a return of, say, a million percent. It’ll just take a while.
This isn’t to suggest Fred isn’t a great investor because I think he is the exception to the normal rule in Venture Capital, which are low returns. After I wrote about Don Dodge’s suggestion that average VC returns appear to be negative Jeff Clavier also suggested in a blog comment here that only the top 25% of VC firms are averaging positive returns, and this really shook up my understanding of things.