Key findings from the CBInsight Venture Capital Funnel

After reading the very interesting post from CBInsight on Venture Capital Funnel, I tried to sort out some key findings.

  • Late stage is not decreasing the risk

The failure rate (dead and self sustaining divided by the precedent cohort) is not decreasing with the maturity of the company.

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Except from 2nd to 3rd follow-on investment, failure rate is roughly around 50%. Late stage investment is as risky as early stage !

  • Return should reach 6.3x on success to reach an average 2x on the fund

If I use these figures on a simplified fund model where management fees are 15% of the fund, 50% of the available fund is invested originally, and where the failure rate is 50% after original investment and 50% after first investment, then, considering failures are returning nothing, I need to reach a return of 6.3 on successful investment to have an average return of 2x on the fund.

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  • Model is very sensitive on % of the fund invested originaly

A 10% increase in the amount invested originally increase the return needed on successful investment by 9%.

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