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- #140 RTF (Return The Fund) Math for VCs
#140 RTF (Return The Fund) Math for VCs
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VC Power Laws and Return The Fund Math
We’ve written about VC Power Laws & RTF Math (w/ Template) many times but it keeps coming back up in conversations! We revisit this today along with some interesting insights below from our friend Akhil Paul - read on!
How Can This Deal RTF? The Investing Math (Yes or No)
Every venture fund manager I know wants to deliver superior performance. Before investing in any deal, a VC fund investor should ask: “How can this deal RTF? Or 2x, 3x RTF? What do I need to believe about the future for that to happen?” There’s always a story around things like an amazing founding team and an exciting market to capture. What about the math to RTF?
It’s possible to lose sight of RTF math as a VC fund investor moves quickly to close an investment. In response to this challenge, we’re sharing a simple RTF Calculator for VC fund investors to use when thinking about a new investment opportunity.
In the example below, a $50m fund making a $2m investment will require a $1b outcome to RTF (assuming a $20m valuation and 50% dilution). These assumptions can vary by fund strategy and sector focus so modify as you see fit!
Additional Resources to RTF
“Picking winners is a myth, but the PowerLaw is not” by Clint Korver
“Venture Fund Economics: When One Deal Returns The Fund” by Fred Wilson
Billion-Dollar Returns Driving Outsized VC Outcomes
Recently our friend Akhil Paul shared the Billion-Dollar Return Giants…Some of the companies fuelling outsized VC returns…. Here are the highlights!
🎙️ In a recent interview with Jason Calacanis, David Clark (CIO at Vencap) debunked the narrative that “large VC funds” can’t generate meaningful returns!
💸 Vencap combed through 36 years of data on the VC funds they’ve backed……and identified 50 (!) companies that had returned over $1 BILLION in profits back to a specific fund that backed them!
📊 The table shows 15 companies that were named by Clark in the interview…
🕵🏻♂️I dug into which VCs were invested at the earliest stages into these gargantuan outcomes.
🎯The usual suspects -- Andreessen Horowitz (A16Z), Index Ventures, Accel, First Round, USV, ICONIQ, Sequoia & LocalGlobe all feature!
🚀 Note that Peter Thiel & Marc Andreessen were very successful angels before starting Founders Fund & A16Z.
🔥Andreessen invested in the seed round of Slack & Twitter & Thiel invested in the seed of Facebook & Stripe.
🤯Elon Musk was also an angel in the seed round of $65bn fintech behemoth Stripe.
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!”