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.
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.
- 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%.