2019 finishes as second strongest VC investment year on record (2024)

FAQs

What percent of VC investments are successful? ›

There is a clear progression of success rates among them. Successful startup founders have the highest success rates on their VC investments, nearly 30 percent. They are followed by professional VCs at just over 23 percent, and unsuccessful founder-VCs at just over 19 percent.

Experts from The National Venture Capital Association estimate that 25% to 30% of startups backed by VC funding go on to fail.

The TLDR; seed investors shoot for a 100x return; Series A investors need an investment to return 10x to 15x and later stage investors aim for 3x to 5x multiple of money. This translates into portfolio returns from 20% to 35% targeted IRRs.

Despite the increase in funding for AI, total VC deal volume has decreased for the ninth consecutive quarter. Q2 2024 saw a 7% drop from Q1, with only 6,230 deals tracked. However, the average deal size has increased by 17% compared to 2023, reaching $14.4 million.

Several articles and research papers have been published on the PME and the comparison of VC versus public stock performance. These studies often show that top-tier Venture Capital funds outperform public markets, while the median or average VC fund may underperform.

Venture capital is a high-risk, high-reward type of investment, and there is no guarantee of success. While VC firms aim to identify the best opportunities and minimize risk, investing in startups and early-stage companies is inherently risky, and there is always the potential for loss of capital.

The agreement is typically structured so that once the fund's investments start getting distributed back to the fund investors, the VC firm gets a percentage of any profits. Most carries are 20%, but a very successful firm with a strong track record might negotiate for a higher carry.

But the truth is, the failure rate of VC funds may surprise you. With over 305 million startups created each year globally, it's no secret that the majority of them don't last long. In fact, 9 out of 10 startups fail, facing various challenges along the way.

For example, venture capital was the top performer from 2010 to 2020, with an average annual return of 15.15%. 2 Furthermore, the S&P 500 slightly edged out private equity, with performance of 13.99% per year compared with 13.77% for private equity in the 10 years ending on June 30, 2020.

What is the average life of a venture capital fund? ›

Based on the sector, theme, or even risk-to-reward ratio, various funds have different lifespans and stages. According to Pitchbook, a VC's average lifespan is around 13.1 years, with funds taking longer to return capital.

They expect a return of between 25% and 35% per year over the lifetime of the investment. Because these investments represent such a tiny part of the institutional investors' portfolios, venture capitalists have a lot of latitude.

Macroeconomic conditions such as high interest rates might cause LPs to shift allocation to fixed-income assets. A lackluster market for initial public offerings and mergers and acquisitions has also turned many LPs away from venture, at least in the short run, Gao said.

For now, you'll find that venture capital success rates are quite low. According to Shikhar Ghosh, a senior lecturer at Harvard Business School, up to 75 percent of venture-backed startups don't succeed in that they never return cash to their investors.

Venture capital funds are usually structured as limited partnerships, which are pass-through tax entities. This means that the tax payment burden falls on the general partners (GP) and limited partners (LP) of the VC fund, and not on the fund itself.

Generally, VCs are likely to get an exit less than 1 in 5 times i.e. VCs don't even break-even unless they get better than 5x return on any individual deal. Most of the VCs probably lose money on their deals and probably less than 10-20% beat the risk adjusted rate of return for other less liquid asset classes.

Even the top VCs fail on about 80% - 90% if their ventures, according to one of the most successful VCs in the U.S. The top 2% earn high returns because they finance home runs. VCs need home runs to do well, and most VCs stink because they do not fund home runs.

Statistically, there is an increased risk of failure with private equity ownership. PE portfolio companies are about 10 times as likely to go bankrupt as non-PE-owned companies. Granted, one out of five companies going bankrupt doesn't portend certain failure, but it is a startling statistic.

The reality is that clustering in major markets hasn't generated a gusher of VC money for diverse founders. Just 0.48% percent of all the VC funding in 2023 went to Black founders, data from Crunchbase shows.