The Business of Venture Capital, 3rd Edition

14Performance Analysis

“By far, performance is the number one reason why we say no,” says Chris Rizik, who heads fund investments as Renaissance Venture Fund. Assessing performance of funds, fund managers, and the fund's performance against a set of industry benchmarks is a critical step toward an LP commitment.

At the heart of it, LPs look at fund managers who can engage in a true partnership. Eric Doppstadt, VP and CIO, Ford Foundation, says, ”My motto is quite simple — “Treat your investors as partners and your partners as investors.” In other words, try to form a long-term partnership with your limited partners, and try to create true ‘skin in the game’ for your general partners. With this mindset, we seek to operate for the long term, with our interests aligned with our GPs. We have been with some managers for almost 50 years. We build these relationships over time and we feel fortunate that venture capital is one of the few parts of the financial markets that has not yet become purely transactional, in which long-term relationships still matter.”

Let us look at the ways LPs rank performance and understand 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 ...