The Business of Venture Capital: Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies, 2nd Edition

CHAPTER 9 Performance Analysis

“This is the excellent foppery of the world, that, when we are sick in fortune,—often the surfeit of our own behavior,—we make guilty of our disasters the sun, the moon, and the stars, . . .”

— Shakespeare, King Lear, act 1, scene 2

Investors assess performance primarily at the fund level and compare any fund's performance against a set of benchmarks. Let us look at the various aspects of performance assessment and the challenges therein. But before we dive into fund-level performance, let us start with individual-level performance.

INDIVIDUAL PERFORMANCE AND ATTRIBUTION

At the heart of it, the business of venture capital is akin to skydiving—small teams form pretty patterns, but each diver has to hold his or her own. Splinter groups are formed frequently. While some glide along, navigating the strong winds, others often crash. The rest of the divers can do little to prevent a crashing partner, so they move on and form a different pattern. Inherently competitive at an individual level, this business is one of hero worship and also-rans, where personal brands often tend to rise above the brand of a firm.

When it comes to individual attribution, practitioners often add a string of successes to their bios. For presentations to limited partners (LPs), the individual performance of practitioners is typically presented with one-page case studies of each portfolio company. Table 9.1 depicts another sample format, a summary table that constitutes ...