Here are the base assumptions we made in our model:

I am not going to address all those assumptions in this post but if you have questions, post them in the comments and I will respond to them.

This model is basically our game plan. Some things changed in our execution of the fund, namely we raised $125mm, and we invested even less in the initial investment of "concept" investments, and we did more rounds for those really early stage companies. So we did 21 investments instead of 15 and we did more rounds of smaller amounts. But even though those seem like big changes, they did not effect the main drivers of fund capital allocation very much. It looks like the average investment amount will come in close to what we modeled and it looks like the capital allocation between seed, first round, and later stage investments will come in pretty close. Right now we are doing much better than 1/3, 1/3, 1/3 hit rate, but let's wait until it's all over to see how that comes out. You just never know in the venture business.

Here's what this $100mm venture fund model produces:

Total Management Fees: $20mm

Total Invested Dollars: $80mm

Total Proceeds on Investments: $322mm

Total Gain on Investments: $242mm

GROSS Multiple: 4x ($322mm/$80mm)

GROSS IRR: 39.2%

Multiple Incl Mgmt Fees: 3.2x

Gain Incl Mgmt Fees: $222mm

IRR Incl Mgmt Fees: 32.9%

Carried Interest Fees: $44mm (20% of $222mm)

NET Multiple: 2.56x

NET IRR: 28.6%

So to make it really simple, a fund needs to get 4x (in this case $322mm on $80mm of invested captial) on its investments to generate 2.5x in distributions to its limited partners.

Paul Margolis of Longworth Ventures did a post a year and half ago on this topic and came up with similar numbers (although the difference between gross and net in his post are lower than mine).

The differences between gross returns and net returns are large in the venture and private equity business and it's important to understand them and be clear about what numbers you are using when you talk about returns.