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- #160 VC Fund Math: "Maximum Convexity" Leads to 10x+ Funds
#160 VC Fund Math: "Maximum Convexity" Leads to 10x+ Funds
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VC Fund Math: "Maximum Convexity" = 10x+ Funds
What game are you playing in VC? Are you going for 10x+ funds or 3x+ funds? Established VC funds with large AUM can lower their return targets to 3x+. A $1b fund generating a 3x = $3b of returns, $2b of profits. That’s at least $400m of carry for the team at 20%. Not bad.
I would argue (and believe most LPs would agree) that most early-stage emerging managers need to be shooting for 10x+ funds. But how do you do that? Today, we share insights from Roger Ehrenberg (Eberg Capital, formerly IA Ventures). Roger shares the following (linked here):
“As I've written on numerous occasions, markets, portfolios and, in fact, many systems in life take the shape of barbells.”
“It's tough to be in the middle - are you artisanal, built for scale or stuck in between? Are you risk taking, risk averse or a combination of the two?”
“My personal approach to venture investing has been to use the powers of illiquidity, convexity and the willingness and ability to withstand extreme pain and delayed gratification for maximum compound returns.”