Venture Fund Performance – Sample Size

The comments to my Venture Fund Performance series have been excellent. In particular, VC Data Junky’s contributions have been terrific. He’s mentioned the falloff in sample size in the Venture Economics data on several occasions and I thought it would be useful to look at that.

Sample_size_2

The first thing you notice about this graph is that the venture business experienced a huge number of new funds in the mid 90s. That was also the time period when the business was putting up really strong numbers. That’s how markets work. Success brings more competition. And that’s what we got in the venture business in the mid 90s. Which, among other reasons, ultimately led to lower returns.

But I want to focus all of you on the recent years, 2002 and beyond. It is true that the number of funds that are reporting to Venture Economics has fallen to levels below where they were in 1990. On the other hand, Cambridge Associates’ sample size is back up to wehre it was in the mid 90s.

This highlights the difference between the two collection methodologies. Venture Economics relies on self reporting whereas Cambridge gets their data largely from the firms that their clients invest in.

And so as a result for the 2002 vintages and beyond, the Cambridge data should be much more accurate and less subject to selection bias. Very interesting.