![]() The representative of your portfolio company will only be able to access the company page of his/her company and update the metrics. Moreover, you can even send an email directly from Kushim Management suite to your portfolio company and invite them to update the metrics. In addition, keeping in mind the bespoke nature of our solutions, now you can add your custom metrics. The Kushim Management suite offers 60 in built metrics to measure the performance of your portfolio companies. The fund performance section offers all the information about your fund’s performance and all the multiples mentioned above are calculated as well. The Portfolio Management suite of Kushim offers customization and user friendly interface to continually monitor the VC fund performance. THE KUSHIM WAY OF MEASURING VC FUND PERFORMANCE What I have described above is a simple way to calculate PME, there are different forms of PME which have been developed over the years such as LN PME, KS PME, mPME, PME+ and Direct Alpha. In this case, the investor didn’t lose money by investing in VC fund as the PME is greater than one. In the same time frame, had the investor invested in S&P 500, he would have earned $395 million. Let’s say an LP invested $100 million in a fund and received $500 million after 5 years. A fund having a PME of more than 1 indicates that the LPs received better return by investing in the fund rather than investing in the market. However, there is another measure called Public Market Equivalent which basically measures the performance of a fund compared to a public market index such as S&P 500. The figure below shows an illustration of the terminology discussed above.īesides IRR, the other multiples discussed above serve as a good metric to measure the performance of a fund. The total value of a fund is the sum of Residual Value and Distribution. It is calculated by adding fair value of all remaining investments plus any cash equivalents minus any liabilities. It is the remaining value of a fund at a given point in time. This is the value of cash stocks that is given back or distributed by the fund to the LPs. It is also known as “Contributed Capital”. This refers to the capital contributed by the LPs to a fund. ![]() To explain the next multiples, we will first introduce some terminology which is used to calculate the multiples listed below: The COC multiple of an entire fund helps the LPs know how much carried interest will be available to split. Of course, the investors will always prefer an investment with 40% IRR over a 5 year period with 4x COC over an investment with 100% IRR over a 1 year period with 2x COC. In VC and PE landscape, COC multiple shows how much return the fund received after exiting the investments. ![]() Next, the IRR is a percentage and so there is a case where a small investment can show a big double digit or a triple digit IRR while a large investment can show an IRR of single digit but be more lucrative once it is accounted for the net present value (NPV).īesides IRR, some LPs are also using metrics such as COC, TVPI or DPI to measure the performance of a VC fund. This is due to the fact that the IRR is not telling us the reinvestment risks and capital redeployment in other investment opportunities. However, the devil here is again in the details. For instance, if you compare two funds, one with an IRR of 24% with that of 11%, one would be inclined to regard the first fund as better performing. In general, VC industry has the self-reporting culture and often LPs have opinionated that mostly the mediocre managers report data.Īccording to an informal research done by McKinsey in 2004, only 20% of executives understood the critical drawbacks of IRR. It is a good practice to not include unrealized returns in calculating fund performance as unrealized returns are risky since value of shares held in a private company can often exhibit large deviation. For instance, the appropriate categories can be:Ī) All Early stage VC funds or Technology VC funds orī) All French early stage technology VC funds Of course, it is a good practice to position your fund in an appropriate category to avoid comparing apples with oranges. There is a gigantic gamut of universes to compare. Sometimes fund managers are tempted to assign vintage year when he started raising the fund not when the final close happened. However, in this process, there are some caveats. For instance, let’s say that a specific fund of a certain vintage year generated 34.5% IRR then an investor would use this to compare with appropriate benchmarks. Indeed, investors typically compare the fund performance with the aggregate returns generated by an entire VC asset class. When we say VC fund performance, the first metric that comes up is the Internal Rate of Return or IRR. Knowledge Product Measuring The Performance of a VC Fund
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