#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

“Performance Data and the ‘Babe Ruth’ Effect in Venture Capital” by Chris Dixon

“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!”