Are any VCs returning money to investors due to lack of great investment opportunities?
has all the right answers here.
It did happen with a few ’00-’01 vintage type funds that were massively over funded, see, e.g.:
Top quartile for an ’00-’01 fund is something like >=0% IRR.
The thing is, though, in anything but the total wasteland of ’01-’02 … it’s totally easy to deploy a fund with full reserves.
Typically, a fund might keep 60% or even more (66%) of the total fund assets “in reserve” for follow on investments.
So image you have 4 partners in a $200m fund, keeping 60% in reserves for later:
- That really means “only” $200m x .4 = $80m is allocated for “first” checks into brand new investments.
- Imagine the average first check size is $4m or so.
- That’s only 20 investments over say 3 years, or really,
- So really, that’s only ~1.5 investments per partner per year to deploy the whole fund in 3 years. Maybe 1.0 if the check sizes are a bit larger.
There aren’t that many Ubers out there.
But there are a lot of Pretty Good start-ups. A lot of them.
Doing 1.5 Pretty Good investments a year ain’t hard.