Kevin Dowd’s Post

The Complexities of Valuation in Venture Capital Funds: Implications for Investors and Fund Functionaries Valuing Venture Capital (VC) funds is a multifaceted process that poses unique challenges due to the specific nature of these funds and their investments. These complexities have significant implications for investors, especially when they seek to redeem their investments. Additionally, understanding whether VC funds are suitable for all professional clients requires a nuanced analysis of the risks and investment horizons associated with these funds. This complexity is further highlighted when compared to the valuation processes of other more standard Alternative Investment Funds (AIFs), such as private equity and hedge funds. Learn more:

Venture Capital Fund Metrics Cheat Sheet Use these tools to Evaluate VC Fund Performance.... 👇 If you are a founder, investors or fund manager this cheat sheet will help you to answer following questions: • When should you use multiple calculations versus IRR calculations? What are the differences? • How is your particular investment performing right now? • How has the company performed historically? • Which metrics are more vital to limited partners (LPs)? Which metrics are more important to general partners (GPs)? • How is your overall fund performing? • How is your fund doing compared to similar VC funds with the same vintage year There are nine venture capital metrics that used to determine fund health and performance are separated into multiple calculations and internal rate of return (IRR) calculations. The multiple calculations include: • Multiple on Invested Capital (MOIC) • Gross Total Value to Paid-In Capital (Gross TVPI) • Net Total Value to Paid-In Capital (Net TVPI) • Residual Value per Paid-In Capital (RVPI) • Distributions per Paid-In Capital (DPI) The Internal Rate of Return (IRR) calculations are as follows: • Gross IRR • Gross Realized IRR • Net IRR • Net Realized IRR The Difference Between Multiple and IRR Calculations: While multiple calculations yield quick figures meant to show you the total value of a portfolio, they don’t consider time. They merely tell you how much money you’re going to receive from an investment. In contrast, IRR calculations do consider timing to tell you how much you will make and when you will get a return on your investment. As such, IRR calculations can give investors a clearer picture of an investment’s potential. As tempting as it is to only pay attention to IRR calculations, there’s a reason why multiple and IRR calculations are usually reported together. Together, they show you the whole picture. Accordingly, you should look at both types of calculations when determining the health of your fund. Here is the download link to the high-res version of the VC Cheat Sheet: https://lnkd.in/e4-fdB3x Here is a detailed explanation of all 9 VC Cheat Sheet Calculations: https://lnkd.in/e9daMHMq Source: Diligent Equity 👉 Interested in startups and venture capital? Subscribed to Venture Curator Newsletter and Join 26000+ founders & investors: https://lnkd.in/dKZQKHg2 . #startup #venturecapital #funding #fundraising #vc #vcfunding #vcfund #founders #fundraising #job #siliconvalley #summerinternship #usa #indianstartups #startups #business #VC

5 Common Mistakes Limited Partners Make When Investing in a Venture Fund Investing in venture funds can be a lucrative avenue for limited partners seeking to diversify their portfolios and support innovative startups. However, the path to successful venture investing is fraught with pitfalls. Today, I'm sharing insights into five common mistakes limited partners often make in this journey. Let's dive in! Insufficient Due Diligence: Many LPs fall into the trap of not conducting thorough due diligence on the fund's management team, investment strategy, and track record. Understanding the fund's approach to sourcing deals, their value-add to portfolio companies, and their exit strategy is crucial for long-term success. Overlooking Portfolio Construction: An optimal venture fund investment should fit well within your overall portfolio strategy. LPs often overlook the importance of diversification across sectors, stages, and geographies. Investing in funds that complement your existing portfolio can mitigate risk and enhance returns. Ignoring Alignment of Interests: It's vital to ensure that the fund's fee structure, investment horizon, and objectives align with your own. LPs sometimes miss scrutinizing the alignment of interests, leading to potential conflicts down the line. Transparency and mutual goals are key components of a successful partnership. Neglecting Liquidity Needs: Venture fund investments are inherently illiquid, with long investment horizons. LPs must accurately assess their liquidity needs and ensure that they can commit capital for the duration of the fund's life cycle. Failure to do so can lead to financial strain and missed opportunities. Underestimating the Importance of the J-Curve: Understanding the J-Curve effect — where funds often show negative returns in the early years before realizing gains — is critical. LPs who are impatient or unaware of this dynamic may make premature judgments about a fund's performance, potentially exiting investments at inopportune times. Conclusion: The venture capital ecosystem offers significant opportunities, but navigating it successfully requires awareness, diligence, and strategic planning. By avoiding these common mistakes, limited partners can position themselves to achieve better outcomes and contribute to the growth of innovative companies. What are your experiences or additional insights on investing in venture funds? Drop your thoughts in the comments below. #VentureCapital #InvestmentStrategy #LimitedPartners #PortfolioManagement #DueDiligence

Learn how RIAs can easily charge their advisory fee on an allocation to venture capital funds | www.agdillon.com/webinar to register | Webinar details below… ALLOCATING TO ALTS PAIN POINTS SOLVED BY AG DILLON VENTURE CAPITAL FUNDS Schwab Custody. All AG Dillon venture capital funds are available for custody at Schwab. This means RIAs' clients’ venture capital fund positions will be on their Schwab statement with the clients' ETF, mutual fund, stock, and bond positions. Fidelity is reviewing several of our venture capital funds now and we expect approval shortly. Performance Reporting. Because RIAs' clients’ venture fund positions are custodied at Schwab, there is no incremental work to deliver performance reporting to clients. RIAs can use the same performance reporting systems they're using today. No change. Advisor Fee Billing. With the venture capital fund positions on clients' Schwab statements, RIA fee billing process does not change. RIAs may bill the same way they’ve always billed. Outsourced Operations. AG Dillon offers complementary outsourced operational services to advisors. For investing clients, simply share their account information and AG Dillon's operations team will populate all venture capital fund investment documents on the RIAs behalf. Or RIAs may complete the documents themself ... AG Dillon flexes to whatever is best for the RIA. Minimums. AG Dillon venture capital fund minimums are $2,500 allowing all accredited investor clients to allocate to the venture capital asset class. One Fund Closing. No surprises and no rushed administration processes. Advisors are given ample time to complete their fiduciary responsibilities, speak with clients, and complete investment paperwork. AG Dillon has a very intentional closing process. One Fund Capital Call. Capital calls are time consuming and tedious so AG Dillon has only one capital call immediately after the venture capital fund closes. No surprises, no stress. And if RIAs custody their venture capital fund position at Schwab, Schwab completes the wire automatically. No work required by the advisor. Simple Portfolio Implementation and Investment Reviews. AG Dillon venture capital funds come in vintages, or the same investment strategy offered in subsequent funds. Think Pre-IPO Stock Index Fund 1, Pre-IPO Stock Index Fund 2, Pre-IPO Stock Index Fund 3. Unlike many other alternative funds, there is always an AG Dillon venture capital fund vintage available to purchase. Easy portfolio implementation / management and only one additional investment strategy to monitor on an ongoing basis. New Clients, Increase Share of Wallet. For advisors that want to grow assets under management by adding new clients or increasing share of wallet with existing investors, AG Dillon creates bespoke marketing plans with our advisor partners. We seek to be the #1 source of new assets from our advisor partners.

More thoughtful work from John Cowan. I applaud what OSS Ventures is doing, as illustrated in the chart showing how they invest in 3 stages: a Concept Fund, an Expansion Fund, and a Growth Fund. This is similar to what we've seen with Scout Funds (early stage, often 'Emerging Managers') getting funded by more recognized/branded firm that 'seed' the emerging managers, then negotiate the rights for the follow on funding/pro rata rights for the 'expansion' and 'growth' rounds. What I would add to this model is the need to maintain proper diversification at each round. This would prevent a GP that wants to or thinks they can add value along the way (so few do, according to Vinod Koshla). Nonetheless, John is correct in raising the issue around a more thoughtful discussion - nay a 'whiteboard approach' to designing optimal structures for venture funding, applying the full body of research available today. For reserach, see https://bit.ly/32m6sYQ.

The due diligence process for venture capital funds is often considered challenging for LPs due to the relatively high risks and uncertainty associated with the asset class. A lack of historical financial data, longer horizons for returns and unpredictable exit strategies all contribute to the complexity of evaluating a VC fund's potential. With the significant increase in the popularity of the asset class among LPs, questions about best practices for due diligence have come to the fore. "The fund-of-fund investment scene has become very crowded over the last few years with a lot of new players emerging," Jonathan Sibilia, partner at Molten Ventures, said. "I am sometimes appalled by the lack of due diligence those guys do. It's very easy for inexperienced LPs to be convinced by (VCs) because they sell very well." According to Sibilia, doing due diligence can be more art than science, and the process may vary depending on the individual LP's strategy. A pension fund targeting established managers will likely be asking different questions than a fund-of-fund focusing on emerging GPs. We spoke with experienced pros and asked about the best ways for LPs to do due diligence. Here's what those pros recommend. https://lnkd.in/e6acRB4z

Venture capital funds mark a 0.2% return in Q2 2023 after five consecutive quarters of challenges. Explore the highs and lows in fundraising, and the promising signs of recovery in the venture market. #VentureCapital #VentureCapitalist #VC #VCFunding

The Case For Fund Of Funds In Venture Capital This is a great article by my friend Ertan Can and his team at Multiple Capital Venture Capital is a hard asset class and a lot of family offices are finding that out the hard way. That’s why I don’t find it surprising that I have at least two multi billion dollar families that are in the process of not only allocating to fund of funds but building their own internal fund of funds structures. A good fund of funds can return top decile returns with less risk and is probably a better allocation strategy for most FOs to get exposure to venture. F Partners Read The Full Article Here: https://lnkd.in/dQEKuNBY #singlefamilyoffice #familyoffice #familyoffices #privatemarkets #privateinvestors

🔥Ultimate Venture Capital Cheat Sheet🔥 A Comprehensive Tool For Evaluating VC Fund Performance Critical intel for investors, fund managers and founders... Specifically, the cheat sheet will help you to successfully address the following questions: • When should you use multiple calculations versus IRR calculations? What are the differences?  • How is your particular investment performing right now?  • How has the company performed historically?  • Which metrics are more vital to limited partners (LPs)? Which metrics are more important to general partners (GPs)?  • How is your overall fund performing?  • How is your fund doing compared to similar VC funds with the same vintage year ----------------------------- 💰Join over 30,000 Investors, Founders, & Fund Managers in Amplifying Investing Performance: https://lnkd.in/eqaHAzvH   ----------------------------- The nine venture capital metrics used to determine fund health and performance are separated into multiple calculations and internal rate of return (IRR) calculations. The multiple calculations include: • Multiple on Invested Capital (MOIC)  • Gross Total Value to Paid-In Capital (Gross TVPI)  • Net Total Value to Paid-In Capital (Net TVPI)  • Residual Value per Paid-In Capital (RVPI)  • Distributions per Paid-In Capital (DPI) The Internal Rate of Return (IRR) calculations are as follows: • Gross IRR  • Gross Realized IRR  • Net IRR  • Net Realized IRR ----------------------------- 💰Join over 30,000 Investors, Founders, & Fund Managers in Amplifying Investing Performance: https://lnkd.in/eqaHAzvH   ----------------------------- The Difference Between Multiple and IRR Calculations:    While multiple calculations yield quick figures meant to show you the total value of a portfolio, they don’t consider time. They merely tell you how much money you’re going to receive from an investment. In contrast, IRR calculations do consider timing to tell you how much you will make and when you will get a return on your investment. As such, IRR calculations can give investors a clearer picture of an investment’s potential. As tempting as it is to only pay attention to IRR calculations, there’s a reason why multiple and IRR calculations are usually reported together. Together, they show you the whole picture. Accordingly, you should look at both types of calculations when determining the health of your fund. ----------------------------- 💰Join over 30,000 Investors, Founders, & Fund Managers in Amplifying Investing Performance: https://lnkd.in/eqaHAzvH   ----------------------------- Here is the download link to the high-res version of the VC Cheat Sheet: https://lnkd.in/e4-fdB3x Here is a detailed explanation of all 9 VC Cheat Sheet Calculations: https://lnkd.in/e9daMHMq

Venture Capital Fund Metrics Cheat Sheet. Use these tools to Evaluate VC Fund Performance.... 👇 If you are a founder, investors or fund manager this cheat sheet will help you to answer following questions: • When should you use multiple calculations versus IRR calculations? What are the differences? • How is your particular investment performing right now? • How has the company performed historically? • Which metrics are more vital to limited partners (LPs)? Which metrics are more important to general partners (GPs)? • How is your overall fund performing? • How is your fund doing compared to similar VC funds with the same vintage year There are nine venture capital metrics that used to determine fund health and performance are separated into multiple calculations and internal rate of return (IRR) calculations. The multiple calculations include: • Multiple on Invested Capital (MOIC) • Gross Total Value to Paid-In Capital (Gross TVPI) • Net Total Value to Paid-In Capital (Net TVPI) • Residual Value per Paid-In Capital (RVPI) • Distributions per Paid-In Capital (DPI) The Internal Rate of Return (IRR) calculations are as follows: • Gross IRR • Gross Realized IRR • Net IRR • Net Realized IRR The Difference Between Multiple and IRR Calculations: While multiple calculations yield quick figures meant to show you the total value of a portfolio, they don’t consider time. They merely tell you how much money you’re going to receive from an investment. In contrast, IRR calculations do consider timing to tell you how much you will make and when you will get a return on your investment. As such, IRR calculations can give investors a clearer picture of an investment’s potential. As tempting as it is to only pay attention to IRR calculations, there’s a reason why multiple and IRR calculations are usually reported together. Together, they show you the whole picture. Accordingly, you should look at both types of calculations when determining the health of your fund. Here is the download link to the high-res version of the VC Cheat Sheet: https://lnkd.in/e4-fdB3x Here is a detailed explanation of all 9 VC Cheat Sheet Calculations: https://lnkd.in/e9daMHMq 👉 Check out my free newsletter for more insights: https://lnkd.in/dKZQKHg2 . Source: Diligent Equity #startup #venturecapital #funding #fundraising #vc #vcfunding #vcfund #founders #fundraising #job #siliconvalley #summerinternship #usa #indianstartups #startups #business #VC #angelinvestors #investors #startupfunding