Is $50 million enough money to start a VC firm and become a billionaire?

No … unless you are a total, once-or-twice-in-a-venture-generation outlier.

A “good” venture fund will return 2x-3x net. And the partners keep 20% of the gain (30%+ in some established funds, but 20% in most).

So if you turn $50m into $150m, that’s $100m in gains — over the 10+ year life of the fund. The partners typically keep 20%, or $20m, from those 10+ years, or about $2m per year — split across the partners. And that’s if you achieve top 20% results. If you think through that a bit, you’ll see it’s very hard to make even $1m a year in venture over 10+ years with a $50m fund with multiple partners, let alone a billion.

Now, 3x is very hard (top 20%), but an amazing fund can do 8x-10x. This is very, very, very hard. Most VC firms have never had a single 8x+ fund.

Even 8x would “only” take you from $50m -> $400m. With $350m in gains, while insanely impressive (that’s likely several IPOs and unicorns in just one fund) … that’s still “only” $70m to the partners. Over 10+ years. A lot. But certainly, no billionaires.

But …

Then there is the outlier. There’s always an outlier. And venture is a business of outliers, after all.

Lowercase I was at 213x in 2015. My guess is it is at around 250x, maybe 300x today given appreciation in Stripe, Uber, Twilio, Blue Bottle, Automattic/Wordpress etc. Phew! What a fund!

Exclusive: Is this the best-performing VC fund ever?

That will make you a billionaire. 250x, will.

That’s the extreme outlier, though. 3x is hard enough to do in venture. 8x-10x is a Fund for the Ages (Accel Facebook fund, Emergence II, Founders Funds, etc. etc). 250x is nuts. And even there, probably only possible because the fund size was so small.

There are a couple of others. But that’s about it.

Lowercase Capital Teardown

Investor Chris Sacca is retiring from venture capital

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Published on February 22, 2018

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