Home > Is the VC Model “Broken”? Observations on VC Success: Who Wins and Who Loses within the Asset Class?

Is the VC Model “Broken”? Observations on VC Success: Who Wins and Who Loses within the Asset Class?

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The key question is: Are most VCs bound to lose their investors’ money?

The uneasy feeling is always there: many VC investments are a poor deal for Limited Partners (LPs). Unfortunately, the issue is clouded by data that is patchy, anecdotal, and at times confusing. Some investments – the “Unicorns”, certainly – are a huge success, others are a dismal failure, and outcomes (relative to public markets) vary according to time, place, and other factors.

So, is the VC model broken, or isn’t it?

This article tries to tackle the question by identifying concrete metrics, collating the results of multiple studies, and comparing data from the U.S. and European VC scenes. As might be expected, it shows that there is no single answer – but it does share many insights about the details. And these details matter because they show that VCs as an investment strategy are under attack from multiple alternative asset classes.

Appeared in the issue: Coller Venture Review — 2014 -1 — Welcome Issue

Original Paper PDF:

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List of References:

  • EY Global venture capital insights and trends report 2013, 2013
  • U.S. Venture Capital Index® and Selected Benchmark Statistics, Cambridge Associates, 2013
  • U.S. Venture Capital Index Returns for the Period Ending 6/30/2013, NVCA, 2013
  • Venture Capital Deals in the US, Preqin, 2013
  • 2012 Pan-European Private Equity Performance Benchmarks Study, EVCA, 2013
  • 2012 Pan-European PE&VC Activity, EVCA, 2012
  • The Performance and Prospects of European Venture Capital, European Investment Fund, 2011
  • Towers Watson PE Benchmarking, 2012
  • Preqin Private Equity Performance Benchmarks, 2012
  • It Ain’t Broke: The Past, Present, and Future of Venture Capital by Steven N. Kaplan* and Josh Lerner, December 2009
  • WE HAVE MET THE ENEMY… AND HE IS US” Lessons from Twenty Years of the Kauffman Foundation’s Investments in Venture Capital Funds and The Triumph of Hope over Experience, May 2012

About the author

Allee Zhang is a Research Fellow (London) at the Coller Institute of Venture. Allee recently completed her Masters in Finance at the London Business School (LBS). She is a management consultant, previously working at Accenture and Deloitte. Ms. Zhang also worked as an investment analyst for a Southeast Asia based Private Equity and Venture Capital firm. Her research interests include private equity, venture capital fund performance and VC value creation.