Measuring Success

While moderating a conference panel earlier today, I noted that median IRRs are negative for VC funds raised since 2001. My intent was not to be nasty, but rather to query the survival prospects of a market in which most of the participants don’t generate profits (let alone large profits). 

Here was one of the responses, albeit paraphrased: If the firms weren’t OK, then they wouldn’t be able to keep raising funds.

Ummm…. No! It might be fun to hide behind the cloak of LP infallibility, but eventually you’ll be found.

The truth is that most LPs are not any better at picking funds than VCs are at picking companies — and they may take just as long to cut bait. A veteran VC firm — or buyout firm, for that matter — can often raise two or three consecutive losers before LPs realize that it isn’t just a cold streak. And many of those new funds might be larger than their underwater predecessors.

Call it loyalty. Call it laziness. Call it pressure to commit funds. Just don’t call it a counter-argument to lousy VC performance so far this decade.