Re:FundersClub Reports Unrealized Net IRR of 41.2%
by tanzam75 on Tuesday February 18, 2014 @02:45PM
(#7260569)
> Venture as an asset class has underperformed the S&P over the last 10 years[1], so you probably aren't missing out on much.
And that's actually biasing the comparison in VC's favor.
The S&P 500 is a large-cap index. Venture capital is supposed to invest in early-stage companies with high growth prospects. A fairer comparison would be to a small-cap index, or to private equity, or to private equity that only takes on small-caps.
Also note that venture capital is risky and illiquid. It should earn a risk and liquidity premium vs. the public stock market. If it can't earn at least this premium, then it would be producing negative alpha.
And that's actually biasing the comparison in VC's favor.
The S&P 500 is a large-cap index. Venture capital is supposed to invest in early-stage companies with high growth prospects. A fairer comparison would be to a small-cap index, or to private equity, or to private equity that only takes on small-caps.
Also note that venture capital is risky and illiquid. It should earn a risk and liquidity premium vs. the public stock market. If it can't earn at least this premium, then it would be producing negative alpha.