#116 VC Napkin Math, Insights, Resources

Happy holidays! Hope everyone had a great Thanksgiving 🦃 with friends/family!

Hi everyone! 👋 We’ve published >100 posts - appreciate the support/ sharing w/ friends! Welcome to our new members of @TheFundCFO crew! We recently launched a paid tier and released our VC Fund Playbook + Models @ Streamlined.Fund! Re-linking top posts: #96 The Case for 30+ Co.'s Per VC Fund, #88 Latest Takes on the State of VC, #86 VC Fund Stacks, and Full CFO Archive.

There’s a lot of great content from notable VCs, LPs, and CFOs/finance pros on the internet. Here, we’re focused on pulling out the insights out that really matter, as well as finding the most current content that overlays historical lessons with current market dynamics, which are changing faster than ever.

Every Tuesday/Thursday, we bring you actionable tools, real-world experiences, and insider insights for #VC CFOs/Finance Pros and fund managers, #LP investors, and industry enthusiasts/people who want to learn :). As a reminder:

  • Tuesday: insights + interviews. Free for everybody.

  • Thursday: deeper dives on VC GPs, CFO/COO strategy, more insights from LPs/GPs, and our take on what it all means (from 15+ yrs. of experience). Exclusive to Paid subscribers (most of whom expense these insights).

“Luck is a matter of preparation meeting opportunity.” -Seneca

Recently, we shared our top posts from October (+September) - these ones really resonated with thousands of views, shares, and feedback! Please do us a favor and like/share if you haven’t already (or forward to a friend). In the meantime, enjoy! Re-linking here for reference!

“According to two well-known VC FoFs I’m close to, ~50% of their profits accrue after year 7. Many managers — myself included — raise new funds in the last year of the deployment period which is typically in years 3–4 of fund life. Sometimes the timeline is shorter for higher velocity investors. What should an LP optimally focus on in the underwriting decision, then?”

“Enter the Seed Stage Enterprise VC Funding Napkin (at year 4 of deployment of the prior fund). It too, is also a mix of art and science — based on Cambridge metrics, Carta data, proprietary FoF data, and general guidance which is subject to interpretation akin to the SaaS Funding Napkin.” See above. Thanks Preface!

1/ 📚 Here are my top 6 favorite books on venture capital:- Done Deals by Udayan Gupta- The Power Law by Sebastian Mallaby- Eboys by Randall Stross- The Business of Venture Capital Mahendra R. - Venture Capitalists at Work edited by Tarang Shah & Shital Shah- Venture Deals by Brad Feld & Jason Mendelson

2/ 🔦 If there’s a Stephen King, John Grisham (or insert prolific author) of venture capital, it would have to be Andreessen Horowitz. They pump out books like it’s their actual business.📗 Secrets of Sand Hill Road by Scott Kupor📘 The Cold Start Problem by Andrew Chen📖 The Hard Thing About Hard Things by Ben Horowitz📙 What you do is Who you are by Ben HorowitzThey create so much content that they created a publication to ensure they have distribution: Future. Marc Andreessen is also a prolific blogger, and I’m surprised he hasn’t written a book yet. I think of him as the Gary Vaynerchuk of venture capital. He's always creating content.3/ 💡 If there’s a Seth Godin of venture capital, it would be First Round Capital. Their First Round Review has been a great source of insightful startup content and they recently celebrated their 10 year anniversary.4/ 👏 Here are some VCs, LPs, and academics on Linkedin who create thoughtful content around the VC and startup industry:⚡ David Hornik of Lobby Capital⚡ Nihal Mehta & Hadley Harris of Eniac Ventures⚡ Sarah Guo of Conviction⚡ Elizabeth "Beezer" Clarkson of Sapphire Partners⚡ Charles Hudson of Precursor Ventures⚡ Chris Douvos of AHOY Capital⚡ Ilya Strebulaev of Stanford University Graduate School of Business⚡ Michael Jackson

“At a point in time in 2021, it appeared like 5x had become the new 3x as the benchmark for a "successful" fund, and many felt that a top-quartile (not decile) average return of >40% net IRR we had seen for the prior decade was somehow the new normal. Of course, gravity always comes into play at some point in markets.”

“If we take a longer view on the asset class today (1996-2021), here are the Pitchbook benchmark returns (note that as Chris Douvos correctly mentioned on Twitter the other day, many benchmarks typically contain sample sets of stronger funds, thus may have some survivorship bias):”

  • Top Decile Net TVPI multiple - 3.06x

  • Top Quartile Net TVPI multiple - 2.39x

  • (for reference PE ix 2.51x TVPI for top decile, 2.07x for top quartile).

“Getting a 3x net distributed to LPs is VERY difficult. Yes, it's more likely with smaller seed stage focused fund,, but it comes with a trade-off of additional risk and illiquidity.”

That’s all for today folks! Thanks for your support and spreading the word! Share this on Twitter or LinkedIn to help grow “the crew!”