Fund Economics

The process to apply the Valuation Policy to a portfolio of 20 startups each quarter would involve several steps.  First, you would need to gather the latest financial and operational data from each startup. This could include recent fi...

The process to apply the Valuation Policy to a portfolio of 20 startups each quarter would involve several steps.  First, you would need to gather the latest financial and operational data from each startup. This could include recent financing rounds, revenue figures, and other key performance indicators.  Next, you would apply the valuation methodology outlined in the Valuation Policy to each startup. This could involve using market comparables, discounted cash flow analysis, or other valuation techniques.  After valuing each startup, you would update the portfolio's overall valuation. This process would be repeated each quarter to ensure the portfolio's valuation remains accurate and up-to-date.

At a minimum, portfolio companies should be reevaluated on a quarterly cadence. This ensures the most up to date metrics are being reported to Limited Partners.

At a minimum, portfolio companies should be reevaluated on a quarterly cadence. This ensures the most up to date metrics are being reported to Limited Partners.

Typically, VC Firms will determine a company's initial FMV as the cost in which it was purchase as the purchase price is usually done at the company's latest FMV.

Typically, VC Firms will determine a company's initial FMV as the cost in which it was purchase as the purchase price is usually done at the company's latest FMV.

Yes, investing via a SAFE (Simple Agreement for Future Equity) means that the investment won't have a set valuation until a future priced round - there is also no share price set during a seed round comprised of SAFEs.  The valuation (a...

Yes, investing via a SAFE (Simple Agreement for Future Equity) means that the investment won't have a set valuation until a future priced round - there is also no share price set during a seed round comprised of SAFEs.  The valuation (and thus price per share) is essentially deferred until more information is available, typically at the time of a preferred stock financing. The SAFE then converts into equity, usually preferred stock, at the predetermined terms, which often include a valuation cap or discount rate. 

TVPI - The amount of money distributed plus the fund’s unrealized value divided by the paid-in capital. RVPI - The amount of the fund’s unrealized value divided by the paid-in capital.

TVPI - The amount of money distributed plus the fund’s unrealized value divided by the paid-in capital. RVPI - The amount of the fund’s unrealized value divided by the paid-in capital.

Residual Value to Paid-In Capital (RVPI) is a term used to measure the residual value of a private equity fund as a multiple of the capital paid in by the investors. The residual value is the current fair value of all assets held by the ...

Residual Value to Paid-In Capital (RVPI) is a term used to measure the residual value of a private equity fund as a multiple of the capital paid in by the investors. The residual value is the current fair value of all assets held by the fund, while the paid-in capital by the investors is the total of all contributed capital up to that time. By itself, RVPI is a useful measure for investors in gauging the current value of a fund’s assets relative to the initial investment. RVPI also provides a perspective on how much value remains in the fund vs distributions the investor may already have received. RVPI can also be combined with the Distributed Value to Paid-in Capital (DPI) to assess the Total Value to Paid-in Capital (TVPI) of the fund. RVPI will change as the residual assets in the fund are valued each quarter. RVPI is also reduced as assets are realised through exits and capital is distributed to investors. A fund’s RVPI will therefore reduce to zero at the end of the fund’s life.

Your model largely depends on your strategy. It's sub-optimal to create a strategy based on a model. Instead, a model needs to based on the strategy. You can find a good model template here: https://foresight.is

Your model largely depends on your strategy. It's sub-optimal to create a strategy based on a model. Instead, a model needs to based on the strategy. You can find a good model template here: https://foresight.is

• Standard practice is to keep money in the fund account and deploy quickly to invest into companies.  • Investment instruments are not covered by the FDIC nor the CDIC. • First time fund managers for Fund I or Fund II should not have co...

• Standard practice is to keep money in the fund account and deploy quickly to invest into companies.  • Investment instruments are not covered by the FDIC nor the CDIC. • First time fund managers for Fund I or Fund II should not have consistent material funding amounts sitting idle in their accounts. Fund III and Fund IV are more aligned with a consideration for a "Sweep Repo" as this mechanism will require material cash minimums to maintain to actually benefit.   Deploying idle investment capital from LPs into investment instruments is NOT standard, so we don't recommend doing this until Fund III or Fund IV is being managed.

The table in this blog post is a good start: https://govclab.com/2022/11/07/managing-fund-expenses-for-venture-capitalists/ There are no best practices here. Every fund is different. For example, a Deep Tech fund many need to spend a lo...

The table in this blog post is a good start: https://govclab.com/2022/11/07/managing-fund-expenses-for-venture-capitalists/ There are no best practices here. Every fund is different. For example, a Deep Tech fund many need to spend a lot of money to perform heavy IP diligence on an investment and it may be justified as a fund expense. Another fund may be required by LPs to have an audit and that is also the justified as a fund expense. Finally, every fund expense has an opportunity cost because that is capital that could be deployed into a startup. Therefore, most new and emerging GPs with small fund-sizes that are optimized for the carry try to keep fund expenses to a minimum. 

There are lots of ways to go about this, but one good way is to start with the focus of the thesis. Then, segment the network around this focus. Next, try to identify founders within the network and people that can help those founders. F...

There are lots of ways to go about this, but one good way is to start with the focus of the thesis. Then, segment the network around this focus. Next, try to identify founders within the network and people that can help those founders. Finally, from the bottoms up try to calculate the value that those individuals can create together. 

It's not uncommon to see 10 - 20% of the carry with vesting and a cliff for an additional partner at this stage. Sometimes more. Use the guidlines of the Venture Share agreement: https://govclab.com/venture-share-2/ However, don't put a...

It's not uncommon to see 10 - 20% of the carry with vesting and a cliff for an additional partner at this stage. Sometimes more. Use the guidlines of the Venture Share agreement: https://govclab.com/venture-share-2/ However, don't put anything in writing. Once you come to terms verbally, then ask your Decile Partners team to help you get the agreements setup, check and update your cap-table and manage the process.

Correct - if you call 100% of their commitment over the 1st two years, then you would have money sitting in the fund's bank account for future management fee payments.

Correct - if you call 100% of their commitment over the 1st two years, then you would have money sitting in the fund's bank account for future management fee payments.

This will be covered in the second half of the VC Lab program and we'll provide all the templates etc...

This will be covered in the second half of the VC Lab program and we'll provide all the templates etc...

Typically, the fund and the accelerator are separate. The accelerator has it's own operational structure and generates revenue in a variety of ways, such as sponsorships etc... The fund is generally a classic 2 & 20 structure. The manage...

Typically, the fund and the accelerator are separate. The accelerator has it's own operational structure and generates revenue in a variety of ways, such as sponsorships etc... The fund is generally a classic 2 & 20 structure. The management fees for the fund can be passed down to the accelerator for additional revenue and it's not uncommon for these funds to charge 3.5% during the investment period and less during the rest of the fund life to average 2% over the 10 years.

A typical return on a 20 company portfolio may have 1 to 3 venture style exits if the manager is strong. There may be another few portfolio companies that get a multiple, and the rest are either a wash or a loss.

A typical return on a 20 company portfolio may have 1 to 3 venture style exits if the manager is strong. There may be another few portfolio companies that get a multiple, and the rest are either a wash or a loss.

The ownership target is dependent on the manager's thesis and their model. For example, at the pre-seed stage, it's very common to see a higher volume of investments to compensate for the risk. However, the average valuations of the inve...

The ownership target is dependent on the manager's thesis and their model. For example, at the pre-seed stage, it's very common to see a higher volume of investments to compensate for the risk. However, the average valuations of the investments will vary widley by the sector and region. For example, valuations are lower in emerging eco-systems vs established ones. I recommend you work backwards here. Start with understanding the average valuation in your eco-system. Then, review the exit values of previous startups that are on thesis. Next do some back of the napkin math to figure out what type of exit you would need for your average ticket to return 1-2x the entire fund size. Finally, use all of this information to figure out your ownership target. This approach will give you a good start. Then, you can take this to the next level by plugging into a more robust fund model like this one: https://foresight.is/vclab/model 

Start with fund models from Foresight https://foresight.is/venture-fund-model-annual/ Exit potential from pre-seed and seed is more art than science. You're looking for team and product potential to scale dramatically to dominate (or cre...

Start with fund models from Foresight https://foresight.is/venture-fund-model-annual/ Exit potential from pre-seed and seed is more art than science. You're looking for team and product potential to scale dramatically to dominate (or create and dominate) a large market segment, with all the steps along the way including likely raising substantial additional capital. CrunchBase, PitchBook and CBInsights can provide data on successful exits, though M&A data can be sparse. Can you discern potential from a deck - maybe, though most likely not. 75-90% of seed startups fail. As a VC, your job is to spot and nurture the true potential of companies, sometimes the deck sucks and you need to look deeper. Emerging managers outperform as they can look deeper and apply domain expertise to find the rockstars, rather than delegating filtering to associates.

There are a number of factors that affect capital call schedules, including if the fund is fully subscribed or not, that greatly affect one's capital call planing. As a result, there is no 'rule of thumb'. Please read this article for fu...

There are a number of factors that affect capital call schedules, including if the fund is fully subscribed or not, that greatly affect one's capital call planing. As a result, there is no 'rule of thumb'. Please read this article for further information on this topic:  https://govclab.com/2023/05/07/vc-capital-calls/