#41 VC Resource Wed: More Fund Models!

Hi Everyone! đź‘‹

Welcome to the VC Resource Wednesday. Each week on Wednesday, we’ll highlight some of our favorite resources for #VC CFOs and fund managers, #LP investors, and general industry enthusiasts/ people who want to learn. We’ll also reference past posts and resources so you have everything you need in one place!

Our recent post “#31 VC Fund Model & Budget - Free Download” was a huge hit - widely shared and downloaded. Check it out and please share your feedback!

“Fund Size is Your Strategy”

“A great fund model is a game changer - it can help a fund go from good to great, driving millions of dollars of additional returns for funds of all sizes and strategies.”

Moonfire: How to Design the Optimal Venture Portfolio

Moonfire, a London-based VC, released their portfolio simulator last week. I’ve been impressed! They ran nearly a trillion portfolio simulations to determine the optimal portfolio construction for a VC fund. Here's what they found:

“Determining the optimal size and strategy of an early-stage VC portfolio is an art, with as many answers as there are firms.”

“That said, there are two main camps: 1) a small, concentrated portfolio, betting on the best companies you can find, or 2) as large a portfolio as possible, acting like a sort of index of the market. And there are plenty of successful examples from both ends of the spectrum.”

We ran nearly a trillion portfolio simulations to determine the optimal mathematical portfolio construction calibrated for real-world success, and found that portfolio performance is largely controlled by five variables:

  1. Decision quality: you need to be better than average at picking winners! This ties in to having great deal flow to choose from as well.

  2. Portfolio size: in VC, too many companies in a portfolio limits your downside but caps your upside. We suggest ~25-30 companies as the optimal target.

  3. Ticket sizing: keep it simple. Use same check size across your portfolio.

  4. Follow-on’s: only do this when the return on the investment alone is greater than the average return on a new initial investment. Keep a high bar.

  5. Upper bound on ROI (of a single investment): do your investments have an upper bound? Or are they uncapped? This drives optimal portfolio size

You can read the full post here. Moofire also released their portfolio simulator which has been fun to use for various scenarios. Enjoy!

Additional Resources

  1. #2 VC Fund Model (Back to Basics)

  2. #3 VC Fund Budget (ASAP)

  3. #17 RTF (Return The Fund) Math: this post unpacks the math behind “RTF” and includes a simple calculator for VC fund managers. It takes into account concepts such as ownership, dilution, and ultimate enterprise value required for one investment to RTF.

  4. #31 VC Fund Model & Budget - Free Download: most widely shared and downloaded post of all-time :)

  5. #33 VC Resource Wednesday: Signature Block

  6. #35 VC Resource Wednesday: #OpenLP

  7. #38 VC Resource Wednesday: Fund Models

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