The data in everything in venture is … mixed.
Yes, the crazy outperformers in venture are smaller funds, from Lowercase Capital to Benchmark, etc.
But the goal overall is to significantly outperform the market (+50% higher) to account for risk, while rewarding those who can afford highly illiquid investments (universities, pensions, etc).
Very large funds will struggle to produce the insane 8x-10x+ returns of a super successful tiny find with a decacorn or two in it.
But, large, later-stage venture funds have two big advantages over small, early-stage funds:
- Investors can deploy a lot of capital into them. A $50m fund with 10 investments leaves room for only $5m per investor. That may sound like a lot, but if you are managing $10b+, $5m is not enough to move the needle. Bigger investors are looking to deploy $50m-$100m per fund.
- The IRR can be very attractive in late-stage investing, done well. If you can do late-stage, pre-IPO investing well, the annualized returns can still be very strong — and on a lot more money. Sequoia put ~$100m into Zoom’s last round in 2017 at $1b valuation. That $100m investment is up 15x in just 2 years! Yes, the earlier investors have an even higher multiple. But Sequoia invested later, and deployed a lot more capital.
Hence, even with some challenges to Uber’s IPO, Vision is already substantially in the money, at least on paper: Masayoshi Son claims Vision Fund LPs are already up 45% — but that’s mostly paper gains – TechCrunch
So yes, Vision’s multiple isn’t as high as a top tier early stage fund. But it’s IRR might be close, at 45%. Because it invested later in big winners.
And 45% still way outperformed the stock market.
Small funds can be great. But they are a lot of work for a very large LP that wants to deploy a lot of money. Too much work, really.