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#181 My VC "Rule of 50", Ownership, Fund Model Impacts
Doug Dyer
September 19, 2024
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“Success is the sum of small efforts, repeated day-in and day-out.”
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Recap
The Latest & Greatest Fund CFO Posts
#163 Top 7 VC CFO Posts of H1 2024 (All In One Place)!
My own “Rule of 50” for VC
A new take on the “Rule of 30” from @MKRocks
Example: a $100m fund needs $5b of exit value to deliver 3x gross (2.6x net) to investors.
If you're a $200m fund you need $10b of exit value! Twice as hard!
Takeaways:
1) Fund size really really matters!
2) Picking the right small funds (sub-$100m) can create huge upside!
— Doug Dyer (@TheFundCFO)
2:09 PM • Sep 19, 2024
Diving Deeper on Ownership & VC Portfolio Construction
Every VC Has a Fund Model - Can You Stick to It?
I love the “Rule of 30” concept that Michael Kim laid out in his original post on Twitter / LinkedIn because of the simplicity of it. Know your fund size ($500m in his example). Get 10% ownership. Multiply fund size x 30 to get exit value required for a 3x fund ($15b for a $500m fund).
Dilution and maintaining ownership is a challenge every VC fund deals with. Many can get 10%+ ownership at entry. What about maintaining that ownership and subsequent rounds? That requires pro rata rights and appropriate reserves within the fund vehicle. But in reality, it’s hard to maintain that 10% number (hence the 6% exit ownership in “Rule of 50.”
Additionally, there are a lot of managers I know and work with that are closer to the $100m fund size (plus/minus). There are a number of key things they and all fund managers need to be thinking about:
