Your lemons tend to ripen before your cherries. That was the advice an experienced seed investor gave me when we founded our own shop Homebrew. It’s a colorful (and delicious) way of describing what’s commonly known as the performance ‘J curve.’ Sometimes you get lucky and have outsized exits early in your fund’s life – these are helpful for brand momentum and recycling – we had one in Homebrew Fund 1 with Cruise (I guess also IRR positive even though it’s really cash on cash that matters). But for the most part, your realized losses occur before your realized gains.

I’m a personal LP in a wide variety of venture funds. Often because it gives me exposure to areas we don’t invest in directly, or as a way to support and learn from friends. Below I’ve take a screenshot of roughly the last ~18 months in my AngelList VC account. You can decide whether ‘using AL’ is a positive or negative selection bias – it usually means just smaller, younger firms so definitely likely more performance variance and lengthly periods to meaningful outcomes. Most of these funds I’m probably making $10,000 – $50,000 investments in (just to provide a scale of what 1x needs to look like versus the numbers below) and I think they represent about 25% of my total LP commitments by number of funds, not by dollars.

As you see there are a ton of very small disbursements! These are mostly the proceeds from seed/Series A failures – what ‘cents on the dollar’ looks like in practice! Every once in while they’re probably interest payments from notes/dividends or escrow payments, which is less relevant.

There are three of any meaningful size (given my cost basis) and none ‘returned the fund’ by themselves – like I said, those cherries are still ripening. Two of them [$4,490 and $16,986] fall into the ‘quick outcome’ bucket – you’ll need to ask those fund managers whether they wished the founders played on instead of taking the acquisitions 🙂

The largest [$20,120] is a partial secondary transaction, and one I especially appreciated. Basically the involved GP solicited my advice about whether or not they should sell a small portion of a portfolio unicorn in a growth round where there was excess demand. Selling this portion would get them to 1.0 DPI (in combination with some earlier distributions) in their first fund and into the carry, as well as create liquidity during a period where other managers are bone dry. It was my strong recommendation to do so, for a handful of reasons:

• The still have a large amount of TVPI in this company and would benefit from its continued growth while derisking the downside a bit. It’s responsible given the fund size.
• We were at a peak in the market and the company (like most) could perform really well and still have to re-earn that valuation.
• Their LPs would remember that they were a good portfolio manager and understood not just how to get money *into* startups but out of startups as well. It would make the next fundraise for the firm that much easier.
• It feels great as a GP to get into the carry!

Now the company has continued to do well but I don’t think this person regrets what they did and regardless I stand by the advice!!!

Venture capital is an easy model to understand and a challenging model to excel at – especially with emerging managers where there’s amazing upside but also more risk. That’s one reason why we believe our fund of funds Screendoor is so well positioned to succeed for LPs, even those who also do direct investment alongside us or into other segments of the VC ecosystem.