VC update

Venture capital is not deemed successful until it returns an IRR of 20%, due to the high risk factors associated with this investment class. Indeed, fund managers typically do not share in fund profits until the 20% hurdle is reached.

In Australia, for the 30 years preceding 2008, the average return on (venture) capital was -5.4% I estimate that the average IRR would have been around -1%, assuming a divestment cycle of around 7 years on average for each portfolio company in all those VC funds over all those decades.

I don’t think the industry numbers have improved since this report was published; in fact I am sure they have gotten worse. Of course, since they are an industry cheerleader, AVCAL (now the Australian Investment Council) isn’t silly enough to publish data that shows their industry is simply burning money.