Venture Capital Returns

This post is for everyone who thinks venture capital is an easy business. I'd like to dispel that notion.

Here are short term and long term returns for the venture capital business over the past ten years compared to the public equity markets in the US.

Venture capital returns

These numbers don't include the internet bubble of the late 90s, so they are just for the past ten years.

What jumps out at me is there are no venture capital returns in this set of numbers that break double digits. When I got into the business in the mid 80s, I was schooled that you needed to produce at least 20% annual returns net to the limited partners to stay in business.

The ten year comparisons to the public markets are also challenging. The NASDAQ Composite beats later and expansion stage funds and all the public indexes beat early and multi-stage funds.

The performance of early stage funds is particularly disappointing. You would expect early stage funds to underperform in the early years. But ten years out, you would expect to see early stage outperform multi and late stage. More risk should produce more return.

This is Cambridge Associates data so it is based on many of the leading venture capital firms and it spans tech, biotech, cleantech and other areas. I believe this is a good representation of the overall performance of the VC business in the US.

Early stage investing is hard. You lose more than you win. And when you win, you need to win big. Later stage investing is a bit easier. You can pick winners in that business more easily. But so can everyone else. Each deal is an auction and the winner pays the highest price.

So the next time you are bidding one VC against another, maybe you can feel just a bit of empathy for us. We are in a tough business, trying to make a buck to live to fight another day. Just like everyone else.

#VC & Technology

Comments (Archived):

  1. Tom Labus

    Is the NASDAQ return showing tech companies make their run post IPO?

  2. azeemazhar

    Hi FredIt’s a great analysis – and venture investing is hard, clear. The investors on average underperform the market. And I believe that due to the kurtosis of the distribution, many more investors underperform that market than half. (i.e. the median returns are far worse than the mean, and a few good ivnestors do really well.)I guess one question is how to innovate to get better returns.One approach is to already be a firm with great partners and a successful network. You can then dominate the fat tail of the returns.We know that the best firms have the best long-term returns, and essentially are the same group who transitioned from the PC boom to the Internet boom. (See this great analysis by Steve Bird at Focus Ventures… )From time to time, investors like you, Index and Foundry come up and do really well. But that seems like a hard strategy. And the question begs – what did you do differently to do better than others?The second is to ask whether the current overall strategy for venture makes sense for LPs or GPs. If venture is so hard and the traditional strategy doesn’t work ,why not innovate on the strategy. In a way that is what 500startups and the like have done – although I have yet to see their returns. But I’m minded of the India-Pakistan border dispute that has run for 50 years – trying the same failed strategy again and again doesn’t seem to fix the problem, so maybe the strategy needs to change.At the start of his great book on VC, Jeff Bussgang describes what a VC looks like – male, hyper-competitive, in khakis, likely to be an over achiever in many walks of life – and likely to be in a partnership driven by the quality of ideas. If that is the strategy, and the strategy is only working for a few, perhaps the strategy and the approach needs to be different?bestAzeem

    1. fredwilson

      I totally agree with you.

  3. Pravin J

    There is a entrepreneur in every investor.. who also wants to make it work and see returns!

  4. awaldstein

    I have a huge amount of respect for you Fred but empathy is not a word that jumps to mind ;)We all fight to win each day!

    1. LE

      I love the use of “;)” to indicate “with all due respect Fred..”

      1. awaldstein

        Winning is hard.I’ve only worked for startups and turnarounds my entire career, some mine many others. Many from seed, a few in the public marketsI’be been super lucky but no one wins more than they don’t.Life and work is all about running up hill. It pays to be in good shape and pace yourself!

        1. LE

          “Winning is hard.”Also things that are easy are boring and no fun.

    2. fredwilson

      That was my point (just like everyone else)

      1. awaldstein

        Nothing is easy…but the people I’m drawn to like the fight and do it with poise and cadence.

        1. JamesHRH

          I think Fred is allowed to say on his blog that he is fighting.We expect a daily post & we expect what is on his mind – we got it today.

  5. LE

    “maybe you can feel just a bit of empathy for us. We are in a tough business, trying to make a buck to live to fight another day. Just like everyone else.”Fred did you get hit by the Java exploit and did somebody hack this post?

    1. kidmercury

      lol +1

    2. Alex Bangash

      90% of all VC firms in the last decade will make “NO” carry. Two will likely make a billion in carry each.

      1. Aaron Klein

        Careful…you may start the “Occupy Sand Hill” movement for all the loser VCs… 😉

        1. JamesHRH


      2. JamesHRH

        Exactly Alex – it reflects the dynamics of the underlying investments.Somebody wins ultra-big: everybody else goes home empty-handed.

    3. Aaron Klein

      Let me take the other side of that trade, since our bartender appears to be taking an (undeserved, imho) drubbing in the comments this morning.Empathy != Sympathy. Fred is not asking us to feel sorry for him or other venture capitalists.I read this post as asking for understanding. When you do pitch meeting after pitch meeting and have to say “no” to decent or even great ideas time after time after time, it’s tough, particularly because you’re potentially crushing an entrepreneur’s dream. And the entrepreneurs are often thinking “geez, this guy has XXX million to deploy. Why does he have to be such a skinflint?”Meanwhile, the VC is thinking “I don’t know if I’m making the right call here or not. But I know this: I’m only four or five bad calls away from not being able to raise another fund and going out of business.”VCs will never have my sympathy, but it’s helpful to me as an entrepreneur to understand their thinking and empathize with it.

      1. kidmercury

        empathy may not equate sympathy, although when you include it in a post that mentions how tough life is, an implication is being made. when fred goes on vacation and we cheer him on and tell him to enjoy it, that is a form of positive empathy. envious haters will not experience that positive empathy (and will be wallowing in their own misery, failing to experience the happiness of others and diminishing their own potential happiness, as a result).the permanent, no-fail solution to satiating one’s desire for empathy is to give it. empathy is a non-scarce, non-rival, network good — the more you give, the more you get……

        1. Kirsten Lambertsen

          Woot to that last paragraph 🙂

      2. JamesHRH

        VC is the ultimate ‘what have you done for me lately’ game.Do you think Fred can tell LP’s ‘I led Twitter’s Round A’ and getting anything back other than ‘so what?’.Fred is 1000% ahead of most VCs – he has identified that there are cycles & he has identified the next one (mobile).I think the post is honest – the theme is not apparent & he is shuffling right now (still on the schneid). I appreciate the unfiltered content.

        1. LE

          “VC is the ultimate ‘what have you done for me lately’ game.”Most things are like that actually. If faced with buying your wife or girlfriend one big gift once per year or 4 smaller gifts go for the 4 smaller. It’s human nature to forget something that happened as time passes.

          1. JamesHRH

            LE – sorry, you are just wrong here.I know an entrepreneur who built a huge network of ATMs in Canada. Eventually became a bank. Awesome business model, awesome business. That opportunity surfaced nearly 20 years ago for him and he nailed it.Nice.His net worth is close enough to a successful VC that you could not tell the difference.The last time he was asked ‘what have you done lately?’ was 1999.

          2. falicon

            when faced with that decision, pick buying for the wife and get rid of the girlfriend – it will make for a longer and happier marriage (I know you didn’t intend that as the choice, but it’s how I read it so couldn’t resist). 🙂

      3. Adrian Bye

        this empathy/sympathy discussion is from the world of autism. i think its weak and while it might sound profound, i think it will be disproven in future.if you’re interested in this topic, i’d suggest looking at some of the work of simon baron cohen and cognitive/affective empathy.

      4. fredwilson

        i don’t mind the drubbing. in fact, i really enjoy it. i think these threads are way to nice to me most of the time. the push back is healthy and i’d like more of it, not less. as long as we are nice to each other when the pushing back goes on.

    4. fredwilson

      i wrote it.

  6. Avi Deitcher

    Do you know what the variance is among firms? Is there a regression towards the mean, or are some investment firms doing really well across their funds, while others are bombing?Someone in this business told me a few years back that when returns got high, too much money piled in. Had the double whammy of driving up valuations and investments (too much demand for the deal supply) and putting less competent managers in investment position (bad investments will kill your returns).

    1. azeemazhar

      Venture returns are highly skewed and don’t follow a Gaussian. Some big winners and a load of losers and mediocres. Short illustration of this in this calpers data set:…Rumour has it that Fred & crew are some of the big winners.

      1. Avi Deitcher

        Sorry, disqus is doing weird stuff again with my comments. Just typical “disqusting” behaviour. Ugh. My comment is right before yours, but I will try to repost after too.

      2. Avi Deitcher

        No kidding. There doesn’t even seem to be a consistency across managers. E.g. Battery VI and Battery VII are below 5% IRR over a life of 7-10 years, while Battery VII Side Fund is showing 26.1% over just 5 years.Who was it who posited that the equity markets were essentially random? Could the same exist here?

      3. ShanaC

        why is that – I mean option theory states they should…..

    2. Guest

      No kidding. There doesn’t even seem to be a consistency across managers. E.g. Battery VI and Battery VII are below 5% IRR over a life of 7-10 years, while Battery VII Side Fund is showing 26.1% over just 5 years.Who was it who posited that the equity markets were essentially random? Could the same exist here?

      1. ShanaC

        eugeme fama did about stock market.

        1. pointsnfigures

          and Fama has been proven correct. No individual can beat the market consistently over time. Because all information is priced into a public stock price quickly and efficiently, you are better off investing in an index fund than picking an individual stock—unless you have more information than the market.VCs by definition should have more info than the market on a firm they invest in. The variance comes with the execution of the company. Each individual investment is iid. When you first make an investment, is the probability that one will be better than the other a lot different? I don’t think so.

          1. ShanaC

            as a non investor who is not lisenced to say anything and should say very much, I was asked among friends what I would do for investing1) things i love, because it is like buying makeup or a great peice of clothing (but this would be a small part)2) Index funds3) a basic momentum strategy, rebalanced every 3 monthsThat’s it. Nothing too complicated. Meanwhile, I’m surprised how complicated people get 🙂

  7. Elie Seidman

    The directional corollary here for entrepreneurs raising capital is that the next time you get rejected by a VC who thinks your idea or business won’t work, you can take comfort in the fact that the statistics indicate that they’re wrong.

    1. kidmercury

      but alas the statistics indicate everyone is wrong, since part of why most VC investments fail is because most entrepreneurial efforts fail. looks like we all suck.

      1. Elie Seidman

        Truth. I should have added to my comment. They’re wrong. But you probably are as well. But that’s too depressing.

        1. William Mougayar

          True, VC’s can be as wrong as the next entrepreneur. But the name of the game for both is to make it work despite having the odds not in your favor.The chances of failure is a given. You enter the VC game or become an entrepreneur knowing that.

          1. Elie Seidman

            Very true. There is a simple solution to insuring that you don’t fail: don’t play.

          2. Donna Brewington White

            Yes! Exactly.My motto: Sometimes you win.(and of course you can only have a shot at winning if you are willing to play.)

      2. LE

        “because most entrepreneurial efforts fail”What percentage is “most” in the above statement?And what do you define as “an entrepreneurial” effort?This isn’t pregnancy or marriage and as easily defined so what is your definition of the above two terms “entrepreneurial” and “most”?

        1. pointsnfigures

          I figure it’s like old floor traders. 90% failed. Entrepreneurship is like that.

        2. kidmercury

          i’m not sure this is something that can be easily quantified, but i doubt there are many people who would dispute the idea that most people who try to start a business shut down the business prior to achieving the kind of financial success they aspired to when launching.

          1. LE

            [ ] Agree[x] DisagreeBy that metric most things that people enter into (as a field of dreams) (relationships, marriage, schooling, sports) are going to “fail” because they won’t meet the expectations. You end up with “sore losers” and it creates a situation where people do things like Lance Armstrong (or that guy with the legs that killed the model gf a few days ago in SA) do. [1]If you lower your expectations and are glad for what you have achieved you tend to be happier. If you are not happy what do you have? Nothing.When I am doing a deal I am able to totally detach myself from the end result until the money hits the bank. So I am rarely dissapointed until the fat lady sings. If I looked at things from a different angle I would be upset much more frequently.[1] Most amazing thing I just heard the other day. Michelle Obama claims that she changed her hair style because she is going through a mid life crisis. That’s scary if true. Imagine having “achieved” being first lady and feeling life is getting boring. Even if said as a joke or tongue in cheek it shows a total detachment from the lives of ordinary people (and especially moms of the same age group as Michelle).

          2. Donna Brewington White

            I don’t think a mid-life crisis is so much about being bored. At least not from a woman’s perspective.It has more to do with the meaning of life.But I have to tell you that I can be in the middle of a crisis and getting a mani-pedi helps me face the world again. So, I get the bangs. It’s a girl thing, LE. (shhhh… don’t tell anyone I said that.)

      3. Carl Rahn Griffith

        I have increasingly come to believe that it’s more a fault of the primary desire being the making of lots of money – and making it very quickly (both VC and entrepreneur often being culpable, not just the VC) – rather than a desire to build something relevant and successful – ergo, sustainable and profitable.Relevance has never been harder – and that’s a hell of a barrier to entry.

    2. fredwilson

      that’s a great takeaway!

  8. kenberger

    I was meeting with Bill Gurley 12 years ago when he said of VCs: “I can’t think of a group less deserving of your sympathy!”

    1. James Fayal

      The most important part of that statement was ’12 years ago’

      1. kenberger

        i doubt his sentiment would have changed in that regard.

    2. fredwilson

      that is the big lesson of this thread!

  9. tkr

    The alternative interpretation is that early-stage VC investors aren’t very good and the ones who make it are lucky. Which of course implies a significant discount on the value of their advice…”So what was your secret for winning the lottery?”

  10. LE

    “When I got into the business in the mid 80s, I was schooled”(When I was in business in the mid 80’s (after college ) I had my own money on the line and had to be right essentially 100% of the time in any major business decision. ) By comparison when I sold that company and worked for two Silicon Valley companies for a few years in the early 90’s I found it almost like being on vacation every day. All the sudden I didn’t have to worry about where I parked the car when I went to the Javits Center in NY for a show or how every dollar was spent and I was paid no matter what as long as I did my job. And all I had to do was my job not the job of 5 people and I had to only know and keep on top of 1 thing instead of 100 things. And I couldn’t lose money either. Worried about losing your job? When you own a “small” business you will lose everything if you screw up. If you lose your job you just lose your salary. (I’m matching your empathy here Fred you’ve primed me..)There is the “investing business” and there is “business” and they are two totally separate things. Not everyone is cut out for every type of business.The reason people may think investing is “easy” is the same reason skiing looks easy if you’ve never tried it. As opposed to, say, doing a back flip or certain gymnastics which people intuitively have a feeling is pretty hard. From the outside people don’t see what goes on under the hood of investing or VC. And for the many skills a VC has built up over the years that it takes to be a good one. And for the toll it takes on your life.

    1. pointsnfigures

      Trading is like that too. Just luck.

    2. Carl Rahn Griffith

      Nicely put. Which reminds me of a recent discussion I had with a friend in London…There is a parallel world/economy that is detached from reality – friends of mine who still live/work in London bemoan that they can’t get into their preferred restaurants so this, to them, indicates there is no recession.They forget, conveniently, no-one is ‘paying’ for these lavish meals/entertainment associated – a huge percentage of it is on corporate expenses so not a reflection of real money/disposable income.Different world.

      1. LE

        “a huge percentage of it is on corporate expenses”Likewise try getting a dollar out of an entrepreneur that is spending their own money. (Note to startups sell to the people who spend other people’s money that tap is always wet.)

  11. Richard

    This can be explained, in part, by a risk free rate being pegged at historic lows the last 10 years. I call it the “crowding in” effect for equity premiums.

    1. JamesHRH

      I think this is a big issue rich. Cost of capital = zero so every goes and plays for high risk returns

      1. Richard

        More so in the p/e m&a space with companies having earnings

  12. Henry Yates

    It would be interesting to see a comparison of top and bottom quartile companies in each of your sectors. For the VC sectors this is probably reflected in the performance of top and bottom quartile VC funds. I would guess top quartile VC would out perform top quartile general stock picking by a sizeable amount.

    1. David Miller

      100% agreed.

  13. William Mougayar

    Bill Gurley captured this very well in the last interview you shared here. He said:”Venture Capital has a very low barrier of entry, but a very high barrier for exit.”VC’s & entrepreneurs are tied at the hip. But I’m not sure if one group deserves more empathy than the other. That would be on a case by case basis.

    1. Alex Bangash

      Excellent comment William. He also said that the Goldman Conference last week.

      1. William Mougayar

        Interesting. I didn’t know that. Thanks.

  14. falicon

    Your last paragraph loses me.There is little empathy for a startup who is out there hustling, but doesn’t yet have traction…because the truth is there is little empathy for any of the players that put *themselves* in the game.If you want empathy, start a non-profit.The best investors (a group I would personally put you and all the USV partners I know in) are value-add way beyond money (and I suspect/hope your numbers are above these averages). Sell that value and it shouldn’t really matter what the other VCs are trying to put on the table (you’re either better or your not for each unique situation).

    1. kidmercury


    2. LE

      “Sell that value and it shouldn’t really matter what the other VCs”As you know I’m always a fan of “selling”.But also remember one of my laws of business. People, when making decisions, are easily lured by the deceptions of the people (or companies) you are competing with. (With the corollary that you can only be as honest as the competition in any business because the end user (as a mass) is gullible which is why we end up with a race to the bottom in pricing).

    3. Brandon Burns

      tell it.

    4. JamesHRH

      The obvious response is that Fred lives in a world where paradigms shift. If the VC paradigm has shifted, he missed it and is way to late to do much about it.I think there will always be USV styled VC.But, I think that VC will do a lot of HailO deals – Round B’s that bridge the Spreading Seeds on the Ground to the Mezzanine of Expansion.Is that Fred’s happy place?Hint: HailO is not his deal.

  15. bussgang

    Good post and data, Fred. As the saying goes, past performance is no indication of future performance. With economic pundits predicting that the equity markets will have zero returns in the next decade, we may look at median performance of 6% (or perhaps double digits if the reduction in overall venture capital improves forward performance numbers) as the new benchmark for success.

    1. Alex Bangash

      Jeff, this does not include the data for the newer models of technology investing. Things would look very different if you shared the new index with the old.

      1. bussgang

        Agreed, Alex. The new model of lean startups, seed investing and growth with scale should yield better industry returns. That’s certainly our bet at Flybridge!

        1. ShanaC

          how does nonweb investing fit into that model?

  16. JimHirshfield

    How is it that VC fund returns data is public?

    1. Alex Bangash

      This an aggregate. Cambridge has agreement to pool data for some of its clients, Jim.

      1. JimHirshfield

        Ah, thanks.

  17. William Mougayar

    I think the situation you described is a very rare one. Very few entrepreneurs/startups have the luxury of bidding one VC against another. Typically, it’s the other way around: VC’s squeezing every term out of a term sheet in their favor, or VC’s that have no empathy for the entrepreneur.

    1. LE

      In some cases I’m believe the VC’s get played by the entrepreneurs into thinking there is competition that doesn’t even exist. I can’t even remember a business negotiation that I have ever been in where I didn’t have people bidding against another option or options that they thought I had that was totally imaginary and that I had completely fabricated.

      1. William Mougayar

        True, to some extent. But the VC/tech startup world is a small one. You can’t really bluff your way into fabricating competition. It’s either real or not.

        1. LE

          Not sure I agree with that. There are plenty of VC firms out there. When implying competition who is to say you have to name names? Besides you don’t even have to say any words. You can just act as if there is something else going on and have the people simply pick up the cues. (One example simply have a delta in email or phone behavior to indicate a stall and the message carried back will be “oh boy must be talking to someone else because this guy was always quick back to me”. You simply send signals which are more powerful then words. Each situation is different of course.) You appeal to primal instincts. (Stuff I’ve done by the way not stuff I’ve read in books..)

      2. fredwilson


    2. Scott Barnett

      USV is typically looking at the very best deals given their pedigree, which means they are typically “competing” for all their deals with the other top VC’s. I agree that it’s a very lofty and atypical place for a VC to be, and so hard to feel sorry for him :-)I was just talking about this with somebody yesterday (before even seeing this data). I’m not an alarmist, but I don’t know how this bodes well for the VC industry in general. Given that the rewards haven’t been that great, I can’t imagine VC’s wanting to keep taking the big risks… which means entrepreneurs have to come up with something much more “baked” before getting funding… which means more lean startups and angel investing (or bootstrapping) before VC’s get involved… maybe not a bad thing, but certainly reduces the need for “professional risk capital” at the beginning?

      1. ShanaC

        it looks to me that vc as an industry needs some rethinking

        1. Carl Rahn Griffith

          Absolutely. All industries – unless they adapt – decline…

        2. Donna Brewington White

          Do or die.

      2. William Mougayar

        Yup, just like any other business segment, when you’re a leader, every one wants to attack you, so you have to play defense most of the times.

        1. JamesHRH

          Easiest way to lose is to play not to win.

      3. JamesHRH

        Please define ‘very best deals’ – like Color?Fred & Feld both talk blog about ‘opening up to the weirdness’. There is no precedent for a good deal. Facebook looked like a money pit (where’s the revenue) & GOOG went 180 degrees away from the accepted wisdom of how search was deployed & what a portal looked like.Not buying Scott.

        1. Scott Barnett

          No – I’m not talking about best deals by outcome. All the top VC’s talk about the team, idea, traction, etc. There is no magic, that’s why it’s high risk, high return. But the top VC’s *do* have a leg up on identifying and attracting deals that have great teams/mgmt, compelling idea and these days typically some initial success.Is USV interested in potential deals where there is no competition from other VC’s? I highly doubt it. Is USV typical in this regard? I doubt that too. Is a USV investment a guarantee of success? Of course not.

          1. JamesHRH

            I will not state this with 100% certainty, but I believe Fred is on record as not caring about 3P VC interest in a deal. I know Brad Feld does not care.The core idea behind theme investing is to ignore the noise in the financial market and find things that fit your vision of the future.Vinod Khosla was the first person to really theme invest rigidly, I believe. he did it first in the mid90’s, @ KPCB, that I have read about, with the belief that pipe bandwidth was required and any start up that made sense and could increase the data through the pipe would be useful.He was right.

  18. Alex Bangash

    Fred, Cambridge Associate’s data does not capture “technology investing” returns, accelerators, early micro VC, international VC, etc. It’s capturing the VC funds returns, many of whom have failed to evolve their thesis and refresh their partnerships. Some of the best returns with the exception of* USV, Accel, Benchmark, A-H, Sequoia, Greylock and Founders Fund,have come from the newer models* Accelerators: Y Combinator (Arguably, the highest cash on cash in last decade)* Angels (Samwer Brothers, Keith Rabois, Max Levchin..)* Micro-VC: Baseline, Floodgate, First Round* New Models: BetaworksThese new models are sadly not included in the Cambridge data. Technology Investing is alive and well. As an asset class, VC is ailing. As with startups, it will be the newer models that succeed. The incumbents are under attack, though some of them will no doubt retain their persistence. ____________________________________________________________________Empathy is really rare in this business, up and down the value chain. Arrogance and hubris is the norm:* The angel investors who will never invest until everyone else has sent their money in. * The VC who won’t consider a company seriously, until it’s hot deal or has term sheet from USV or Accel.* LP’s who will only run after hottest fund and consider it sacrilegious to stray beyond a handful names.* The CEO who will fire employees than let their options vest.__________________________________________________________________And if you don’t want to buy high (in an auction), buy low when nobody wants to invests the company.

    1. Tim Schigel

      Alex,Great point. Successful early stage VCs have migrated to late stage investing and savvy seed-stage, angel and Micro-VC have also migrated later as well while innovating their models.The same Cambridge data shows that early stage venture has generated great returns over the long term (beyond 15 years). For example, the 20 year returns are:VC 39.74%DJIA 9.84%S&P 8.50%This is a cyclical business and those cycles stretch beyond a 10 year window. We’ve also not seen the exit opportunities due to the cost and complexity of going public, which is a troubling and potentially permanent systemic issue. However, despite this long-view consideration, it seems that Early Stage VC (Series A & B) has seen a lack of innovation given the migrations mentioned above.Is it time for VCs to consider innovating themselves? Anyone see interesting new models?

      1. Alex Bangash

        Tim,good observation about cyclicality. Earlier for a long time early stage VC did well. Now late stage is doing well, but if there ever was a bubble it is in late stage. Living Social may have been written down from $5.7 B down to less than a Billion.

    2. fredwilson

      sadly this is all true, including the lack of empathy.

  19. CWM

    Awwwww… when that flash of empathy passes, let’s get rid of the carried interest loophole.

  20. Brandon Burns

    The understanding should go both ways.I hear far too many VCs rip apart a company’s business plan, with amazing frequency and joy, because they think the company “should” or “needs” to jump into a different game to “stay alive.” How HBO “needs” to become Netflix. How Apple “needs” to get Google’s depth of machine learning. How a marketplace is the “only” way to do retail. Etc.Maybe HBO just wants to make awesome long form content, and they don’t give a rat’s ass about Netflix. Maybe Apple likes making beautiful hardware and is willing to let Google beat them in the areas they simply don’t want to play in. Maybe Fab has no interest in Etsy’s business model, in the same way USV isn’t barking up Goldman Sachs’ tree.And maybe all those companies that are not doing what they “should” do, but are nevertheless winning anyway, will keep winning in the future — not by pivoting to do something they don’t want to do, but by continuing to excel at the things they love and are already doing right.So, VCs, next time someone truly legit comes into your office with all their Is dotted, Ts crossed, and passion oozing out of the ears, think twice before you arbitrarily challenge them on their chosen business model because you think they “should” be in a different game — and remember that you yourself have chosen an extremely low return model, and you probably “should” take your own advice, close up shop, and go dump all your money into the S&P 500.If empathy is what you want, empathy is what you should put out. We’re all in a tough business, trying to make a buck to live to fight another day. Just like everyone else.

    1. LE

      “think twice before you arbitrarily challenge them on their chosen business model “Maybe I was just raised differently but I kinda like being challenged and I am used to having to defend my point of view so I would actually enjoy the experience you have described above as negative.

      1. Aaron Klein

        +1. I had one suggest that I exit a transactional model to build a Facebook game instead. I exited the meeting shortly after that but I can’t say the data point wasn’t interesting to think about. 😉

      2. Brandon Burns

        I loved to be challenged. I can take it as well as I can dish it, or at least I’d like to think.But that wasn’t my point. My point is that a VC cannot credibly say, “We won’t invest because you’re not taking what we think is the obvious right road,” when they themselves are not taking the obvious “right” road. A VC has the prerogative to like or not like anything about a deal — but when they say “you shouldn’t be making X product, you should instead be in Y market,” they should think twice because those words can easily be flipped back on them and their model that’s proven to be quite poor.That said, everyone should challenge everyone. That’s how you get to a better place.

        1. LE

          “My point is that a VC cannot credibly say””but when they say “you shouldn’t be making X product, you should instead be in Y market,” they should think twice because those words can easily be flipped back on them and their model that’s proven to be quite poor.”Brandon, it’s the golden rule. He who has the gold rules. Doesn’t matter if you are right because flipping it back to them won’t get you to the promised land. Money will possibly. You have to do what’s necessary to get the money (if that is what you want).Always separate what is right or just (or whatever you want to call it) from what it takes to get the job done. I’ve had to bogu (bend over, grease up) many times to get what I want.The VC model like business is not about being right it’s about making money.As someone else has pointed out here Fred appears to lives a nice life by following the model he has chosen.

          1. Brandon Burns

            All fair counterpoints. I won’t argue any of them.I just hope to point out that, if Fred wants empathy for foregoing a path proven to be more promising because he’d rather be a VC, even though it’s a statistically low performing industry, he should grant that same latitude to others.

          2. fredwilson

            i wasn’t asking for empathy for me, although in reading it i suspect that’s how it came across. i was asking for empathy for the folks who are in the VC business because it is just as hard as any other business

        2. jonathan hegranes

          love your comments and ideas, but one point of disagreement is that VCs actually have an incredible business model…they get paid 2% of $XXX million to shoot for the stars.not that their performance doesn’t suck, but their actual business model is pretty damn sweet — especially when you consider the tax advantages of the bulk of their earnings.

          1. Charlie Crystle

            20% of the outcome. Pretty motivating. ButI agree that flat 2% on the fund annually is a failed model. Should be capped.

          2. ShanaC

            i think it is insanity – not enough carry

        3. fredwilson

          believe me the limited partners say exactly that to the VCs

    2. ShanaC

      i like this comment:business in general is a tough thing

      1. Matt A. Myers

        Changing status quo and people’s behaviours are a tough thing.

        1. ShanaC

          i don’t think behaviors can be changed at the very base level: they can be shiftedBasically, you can’t stop a hungry man, but you can make him eat kale and not cookies if you don’t have cookies around

          1. Matt A. Myers

            I wouldn’t call hunger as a behaviour, though it does generate behaviour – and that behaviour will be molded by the environment surrounding.

    3. James Fayal

      You make a good point about VCs being in a low return industry, but if there is one thing these guys know, it’s startup business models. Its what they do for a living and they get to see results over 10’s if not 100’s of startups (a good entrepreneur sees maybe 5?). If a VC can make you pout because they’re picking on your business model you might be in the wrong line of business.

      1. Brandon Burns

        “If there is one thing [VCs] know, it’s startup business models”With 6% returns? When “traditional” investing is seeing 20%?I think you’ve missed the facts, and the point of the comment.

        1. James Fayal

          My point is not that VCs have picked the best possible field in terms of returns. It’s quite obvious that they haven’t, but I think there are other reasons to want to be a VC, which can’t be said for most other financial industries.That being said, you compare a seasoned VCs ability to pick apart and choose promising business models vs an average investor or an entrepreneur and they’ll blow them out of the water. To have any positive, return in an industry where 90% of possible investments fail, is an impressive feat regardless of how small it is.

    4. Carl Rahn Griffith

      If you have profitability/stability that means your life and business is sustainable/debt-free then you’re a very lucky person/business. The world is changing rapidly and many houses-of-cards are about to tumble in a very messy way.Let’s not even get onto the ever-escalating suicide-rates of normal folks like us in Spain/Greece/etc borne from our screwed-up value/reward-systems finally imploding.Who/what is next?

      1. Brandon Burns

        i hear ya.

      2. Matt A. Myers

        The world organization is currently really fucked up. All systems are unhealthy.

        1. nomenot

          Maybe they’ve always been “really fucked up”. But in the age of the internet, we know.

    5. falicon


    6. kidmercury


    7. JamesHRH

      Brandon, your post is simmering on me and starting to raise my Irish, despite my prior positive response.You have taken the specific personal and responded in the industry general.Its a disservice to the bartender, although I bet he will not take offence.USV is the vanguard of empathetic traditional VC (along with Foundry & a short list of others) and this blog pulled back the curtain on VC practises for entrepreneurs.

      1. Brandon Burns

        I’m not knocking USV. I’m also not knocking Fred personally, he knows how much we all like him.But I am knocking the way Fred frequently talks about businesses.Let me start by saying that there are many, many positives that Fred and USV have introduced to the startup community, including AVC, which is why I’m here on a daily basis. I shouldn’t have to defend my #1 fan status. But that doesn’t absolve Fred or USV of all sins. :o)Fred just yesterday claimed that Andoird and Google are going to “win” due to their prowess in machine learning, presumably beating Apple / iOS. But beating them at what? Machine learning? I’m sure Apple doesn’t give a rat’s ass about machine learning. And they, for decades, have chosen to not care about many things investors and the market said they should get into — and that laser focus on what’s important to them, and the rejection of everything else, has made them the most profitable company in the world.Fred recently claimed that HBO needs to be more like Netflix, and Netflix needs to be more like HBO. I won’t challenge the wisdom of that from a “which model will make more money” standpoint, but I will challenge the emphasis on “need.” If HBO loves making the content they make, who is anyone to say they “need” to get into another business? Especially when they’re kicking ass at the business they’re already in?Fred is fond of positioning his theses as “the” way to do something. And I won’t challenge his wisdom and vision at all; he and USV have the prerogative to invest in whatever they want to invest in. But that doesn’t mean everyone needs to march to the beat of their drum, especially if they don’t even like the tune. And it doesn’t mean that anyone who doesn’t follow the Fred/USV bible won’t be 1st in class; last I checked, Apple was still trampling on Google’s market cap, HBO makes more money than Netflix, and the list of examples goes on.Fred chose to write about this topic. I’m merely holding a mirror up to him. He writes publicly and includes a comment section, so he’s inviting open responses like mine. And while no disrespect was intended, I don’t believe in kissing the bartender’s ass anyway; he has enough asskissers, and I quite enjoy my role of providing counter opinion on AVC. :o)

        1. JamesHRH

          Wow, i do not agree with anything in this post.How can you hang out on a business blog, like the author, but not like the way he talks about business? Talking about HBO & Netflix is talking about markets at a macro level. There is an endpoint coming in those markets (phones, content) and someone is going to lose and lose badly.That seems like an important discussion.Your approach is like a parent letting kids walk outside, into a blizzard, in shorts & a Tshirt because they ‘really love wearing those clothes.” If you want to see your kids safe at the end of the day, you check the weather regularly, try to predict it, and then suggest a course of action.Especially if the weather is going to kill every kid on the block except for 2.Yesterday’s post is a fun exercise in that area. Oh, and one person here has sat on the BoD of a market creating startup and had these conversations, when they actually had tangible results (hint: not you or me).Fred’s LPs ‘need returns. If he stood in front of his LPs and said ‘90% of our portfolio love what they are doing but they are now 3rd in their markets (in market share or net profit), when they used to be first……but that’s fine, we are so glad they love their work…….”, he would never raise another fund.Fred communicates the USV model & thesis as his way to do something – you are factually incorrect here. That’s not ass-kissing, that is factual accountability.A cursory knowledge of Fred’s personality (or personality type) would stop you from making wildly general remarks that are just flat out wrong, when applied to the specifics. The MIT crowd almost never fall for ass-kissing – its not in their DNA.You may take it in as ‘the only way to do things’, but that is on you.Your posts today – as opposed to most days – are not a counter opinion: they are an unrelated, general industry rant, that plays well to the crowd but has nothing to do with Fred or this post, really…..I like a good argument too. You just don’t have a one today.

          1. Brandon Burns

            Perhaps the point I was trying to make was missed, or it wasn’t missed but you just think I’m off my rocker. I’m cool with that.I won’t argue the point anymore, but I’ll reiterate that no disrespect was meant.As in the past, another day will come when we agree. :o)

        2. LE

          “Fred is fond of positioning his theses as “the” way to do something.”But you have to do that otherwise you are watered down and don’t get as many comments or discussion. If anything I applaud Fred for throwing himself under the bus like that and on a regular basis. (Or maybe he is just sloppy? Who knows?)You never get the same behavior out of Paul Graham. He has people review his writings before posting at least some of “his” essays I believe. (Which by the way how are they “your” essays if you have people review them before posting?)Here’s one:…Thanks to Sam Altman, Mike Arrington, Paul Buchheit, John Collison,Patrick Collison, Garry Tan, and Harj Taggar for reading drafts ofthis, and Marc Andreessen, Joe Gebbia, Reid Hoffman, Shel Kaphan,Mike Moritz and Kevin Systrom for answering my questions aboutstartup history.

          1. Brandon Burns

            True. And its great that Fred leads the way with a strong opinion. Its a mighty sword, albeit one with a double edge.But I completely agree with your perspective. Fred for sure deserves props for having the balls to consistently throw himself in front of the bus.

        3. Charlie Crystle

          downvoted. Post hoc ergo propter hoc.

          1. Amar

            That was the most memorable west wing episode name for me 🙂 Well played.

        4. fredwilson

          i stand by my opinions on HBO and Apple and don’t take any offense in you taking shots at them. but i will most certainly continue to write those sorts of things here at AVC.

        5. M. Edward (Ed) Borasky

          Google won’t beat Apple because of “machine learning”. They’ll beat Apple because they have a *strategy* that includes becoming the lowest-cost producer, winning the browser war, killing off products that don’t meet their goals and actually making people *beg* to be allowed to spend $1500 on a *beta* device that’s essentially a helmet cam.

    8. andyidsinga


    9. jason wright

      square pegs and round holes. “….trying to make a buck to live to fight another day. Just like everyone else.”everyone else? Larry Ellison’s daughter received her rumored $2Bn inheritance at age 25.

      1. fredwilson

        poetic license

      2. ShanaC

        and got involved in the movies (one of the older content businesses around)

      3. JamesHRH

        Let’s see how that goes for her. A bet it turns out to be a tougher day to day fight that you would expect.

    10. Arron Bright

      Let The Church Say Amen

    11. markslater

      thats the best comment i’ve seen on here in years…

    12. Youssef Rahoui

      Regardless of this article, you can fail your business and still give good pieces of advice. You obviously also can give bad ones. So I am not sure your reasoning holds.

    13. Charlie Crystle

      while this is a great statement in style, it seems off in content. Do you equate HBO–an old corporation clinging to an old (and lucrative) model–to a startup pitching their unproven stuff to VCs who see a thousand similar pitches per year?It seems you do. I don’t get that. Should VCs be skeptical? Yes–there’s not just a lot of shit out there, there are uncommitted teams looking for investment to fund a hobby instead of a passion.There are committed, passionate teams that don’t know how to sell shit or be adequate stewards of others’ investment in them.There are narrow, self-absorbed founders who pitch extremely well, attract followers and turn them into employees, then burn the whole thing down because of ego.Not everybody is pure–not you, not me, not every founder that treads through a VC office, and certainly not VCs.

      1. Brandon Burns

        I’m not comparing HBO to a startup. Nor am **I** comparing HBO to Netflix. Fred did that himself right here on this blog, as other VCs / investor types have else where. I’m just referencing said post from last week.My point is that I don’t think any such comparison should be made in the first place. Par example, HBO mainly makes and distributes original content through the cable TV system. Netflix mainly distributes the content of others through software. One may get into the business of the other, but I don’t think anyone has the right to say one “must” or to poo-poo their business model if they don’t.Just clarifying where I’m coming from to someone who’s opinion I respect. :o)

        1. Charlie Crystle

          “I hear far too many VCs rip apart a company’s business plan, with amazing frequency and joy, because they think the company “should” or “needs” to jump into a different game to “stay alive.” How HBO “needs” to become Netflix.’

    14. fredwilson

      i hear what you are saying but i am going to keep writing what i think here at AVC. nobody is required to read it. and maybe nobody will.

      1. falicon

        I suspect you just might be onto something here that the crowds will continue to seek out 😉

      2. Brandon Burns

        i’ll read.and i’ll also keep leaving comments. whether people read or agree with them, or not.**edit**actually, not true. i leave comments here because they get read and conversation ensues. i’ve stopped frequenting more than 1 VC blog due to the author’s inability to take in any feedback in the comments that didn’t stroke his own ego. thankfully, this is not one of those blogs.

        1. fredwilson

          good. as i just wrote way down in this thread, i really appreciate the pushback. these threads are way too nice to me. it gets a bit sugary sweet and that’s not what gets me going. i like a debate. as long as we are nice to each other. and that is the culture of these threads and i am proud of that.

          1. Brandon Burns


          2. baba12

            they are sugary nice maybe they are trying to score some brownie points. TO be able to say I am pals with you Mr.Wilson…I think if the VC business is tough then it must have some value to those who are in it to stay in it, nobody is holding a gun to their head to stay in it.If the returns are not good enough there shall be a exodus.What is tough business is it pertains to Brandon’s comment about empathy I would say those who go to a VC to get monies, doors opened connections made etc also have to pay a price and that price is a negotiated one, I don’t think empathy has a role to play at all.I don’t feel bad/sad/great/joyful for a VC for either loosing money or making tons of it. They are going to be just fine and mos of the VC firms limited partners families will be fine for generations to come.Empathy is for those who struggle to put food on the table and do the right thing on a daily basis and live to see another day.

  21. Rivka

    So why the big fees?

    1. Alex Bangash

      Late stage = great fee stream

  22. John Revay

    Fred – your table is missing a row :)”Union Square Ventures – All funds”

  23. jason wright

    “Where’s your empathy brother? It’s a substance abuse problem”

  24. Seth Lieberman

    No one who is paying attention would say generating high returns for LPs is easy. I think the other side of the coin is generating high returns for fund managers who based on fund size, partners etc (yes many parameters) can leverage the 2/20 structure to make million dollar incomes while generating sub par returns. That, I believe, is mixed up in the “VC is easy” commentary.

  25. ShanaC

    So why is this happening? Real Option theory states that the more risk, the more likely of early stage failure or success. Why the level of failure then?

    1. pointsnfigures

      volatility……and there are black swans in early stage investing.

      1. sdefor01

        Exactly. The market can remain irrational far longer than an investor can stay solvent.

        1. pointsnfigures

          Man, don’t I know that from experience.

      2. ShanaC

        why is there so much volatility that brings down returns? The only thing I can think of is lack of liquidity, not anything else

    2. Alex Bangash

      Shana, early stage has done well, but traditional VC’s have been investing less and less successfully in it.

      1. ShanaC

        according to those numbers, early stage is still doing poorly

    3. James Fayal

      Extreme volatility, lack of liquidity, and lack of diversification.

    4. Tom Labus

      This is also a very short time frame to draw hard core conclusions from. It is interesting but could change completely with another few years results.

  26. Pimp

    That’s why you have to keep pimping your firms in your daily blog Fred. Regardless of the merit of the products or services. I would love to hear about your losers.

    1. fredwilson

      there are so many of them. 2/3 of our investments are losers

  27. pointsnfigures

    So let’s tax it more…..especially all the money those rich VCs make. They add nothing to the economy.

  28. JamesHRH

    You are getting the Sheryl Sandberg Effect here Fred. Your net worth is skewing everyone’s response.The VC business is totally different than when you started. You are to be commended for being far outside the lines of the meanest, least sympathetic portions of the industry.I am sure you must regularly feel some nostalgic pangs (this clip can’t get embedded enough, obv.… ) over the lack of skill that fuels Angelist, YComb, TechStars & the like. They have Etsyfied your industry (ah the sweet irony) and will likely continue to do so.Hang in there – you are more likely to figure it out than most people in your industry.Oh, and good luck at your next meeting.

    1. falicon

      sweet irony indeed 🙂

  29. aminTorres

    Makes me wonder what the USV numbers look like against this chart…

  30. sdefor01

    So how can newer startup communities get it off the ground and plant more seeds? Seems that the angel model at the seed stage is broken and impossible to attract investors looking for actual returns other than from billionaire gamblers as a version of philanthropy. I would love to see the distribution of returns for angel funds. Perhaps the only way to look at seed investing is that you’re buying lots of options. Really hard to nurture those seeds efficiently with that model, though. Where is the place for a traditional Angel? Can someone talk me off the ledge?

  31. JLM

    .”Just like everyone else”Today is going to be a very tough day for Fred Wilson on the empathy front.VCs are not like everyone else unless that everyone else has a big NYC apartment, a home in the Hamptons, a ski chalet, a perfect family and a very good brain.And a few bell ringers to his credit. An enviable bank account.”This is the business we have chosen.”…We all need to count our blessings.As to empathy, let me call it something else — a bit of grounding as to how the game of life is really played and how fragile it all is.Empathy in business? Sure.Empathy in life? Damn right!JLM.

    1. James Fayal

      If you think the average VC has a big NYC apartment, a home in the Hamptons, and a perfect family you have an extremely skewed perception of VC my friend.

      1. JLM

        .Jimbo, my friend, we call that “joshing” round these parts, bit of fun play really.Poking a little fun at our Fred. He is a very, very good sport. It is part of his exceptional charm.But really, you need to get yours and quickly. Before they run out. Didn’t they tell you?Most also have an airplane and a yacht. I think.You’ll catch on.JLM.

        1. Carl Rahn Griffith

          Let them eat cake! 🙂

        2. David Clarke

          Begs the question posed 50+ years ago by the other Fred (Schwed): ‘Where are the customers’ yachts?’ !

          1. JLM

            .Haha, well played David!JLM.

      2. ShanaC

        honestly, i think for most of the country, the average vc is the guy from girls. So what is the average VC like?

    2. fredwilson

      you read the room correctly my friend. but i am having more fun reading this thread than any i have read in months.

  32. bijan

    yet another reason why the “carried interest” debate is unusual to say the least. most VCs don’t generate carry, not sure why they even care about protecting the loophole.

    1. Alex Bangash

      Exactly, it is no going to change anytime soon also.

  33. sdefor01

    Is there value in creating a VC model that can align incentives to build long-term (20+ year) enduring companies? If a fund were created with a 15 year lock-up and exits based on dividend returns, would anyone invest?

  34. Super Duper Truth Pooper

    Do the numbers above represent the fund returns only?If so, don’t the VCs also get to make a buck on the management fees too? 2% on even a small sized fund is a pretty good living. And depending on how the fund management expenses get treated, inclusive or exclusive of the management fee then one can easily see that while VC funds may underperform but the VC himself (sorry I really want to say herself too but we all know the industry) makes out pretty well. Don’t you think?I sympathize and empathize with how tough the industry is. Personally, just not sure a closing line that is so; well, ‘man of the people’ smacks of reality.

    1. fredwilson

      you are 100% right

  35. David Miller

    It’s tough to make money in ANY business, Fred, and not just in VC investing. You know that. From the comments, it looks like you unleashed a fire-storm.

    1. Tom Labus

      so true and even more so post 08

    2. fredwilson

      yup. that’s why i said “like everyone else”

  36. William Mougayar

    I think early stage investment is more relationship oriented vs. later stage which is more transactional.That said, if the entrepreneur is bidding one VC against the other in the later stages, I don’t have an issue with that. But it is troublesome if done in the early stages because that relationship has to endure the test of times, and if it starts on bad blood, it could end with disasters.And if that bidding lead to higher valuations, then the entrepreneur is setting themselves up for failing from a much higher altitude where the effects are much more lethal. The margins of errors on the growth trajectory are reduced if your valuation is not realistic and you start missing your milestones targets.I would rather have an empathetic VC who gave me a lower valuation on my side in those times rather than one who was cut throat but gave me a higher valuation. That last VC will not empathize with me.

    1. awaldstein

      Is empathy really a currency that matters at all?Understanding, certainly. A fair contract on both sides. Support for creating wealth and support in letting things that go south be seen in a good public face.I get support and empathy from my family and friends. In business and in business friendships I want clarity, support and a level response. They are not the same things to me.

      1. William Mougayar

        Believe me it is. Empathy and understanding can change terms on a sheet. There are good times and there are bad times. Each has their own dynamics.

        1. awaldstein

          I bow to your experience here but I was schooled and still believe and practice that a contract needs to be fair regardless of the personalities of the signers.I write each and every contract (and I did M & A for years) as if the world will change and the personalities that sign will not be around.

          1. JamesHRH

            You cannot negotiate effectively without empathy for the other sides position.Understanding without empathy is hollow. You will be able to react to requests from the other side (because you understand the request) but you will never be able to anticipate a request, because you don’t fell where they are coming from.

          2. awaldstein

            Don’t agree.The ex literature teacher here defines empathy in the traditional sense:”He felt great empathy with the poor.”I negotiate with understanding and consideration but no empathy. I don’t need that to make understanding useful and sincere.

          3. JamesHRH

            As the old saying goes ‘Once you can fake sincerity, you have it made.’Rule 1 in Solution Sales 101: ‘People do not care how much you know until they know how much you care.’I agree with you that work & business relationships are what you have written down.But how you treat people, that you have empathy for their situation, will generate far more for you in the long run.Just ask Kobe Bean Bryant about Dr. Jerry Buss.

          4. JamesHRH

            I think we are in a semantic loop.

          5. William Mougayar

            True. Some people don’t know (or care) about the meaning of a win-win outcome. If there’s no win-win, and despite it being cliche, these deals don’t generally work out for both parties, in the long run.

      2. Guest

        “If you want someone to like you” get a dog.

  37. James Fayal

    Fred I feel for ya, because I know VCs work their asses off and most of them still struggle to raise funds, but these comments kind of remind me of the Tuna vs. Lion scene from the other guys:

    1. kidmercury

      hahhahaa i love that scene! hilarious!!!!

    2. JLM

      .Haha, well played.JLM.

    3. JamesHRH

      Thanks James – have to catch that flick.

  38. Leigh Drogen

    While these may be the returns of the index, just as in the long short or stat arb hedge fund world it tells a very skewed story. The fact is that a majority of funds, be it venture or hedge funds, are not worth investing in. Most managers are not worth investing in. There are a set of funds and individuals in each discipline who have proven across time that they can put up the numbers. So yes, creating alpha in any asset class is difficult, but no more so in venture investing than any other. Good managers are good managers and there aren’t many out there.

  39. Siminoff

    I would like to see USV broken out on the chart:)Hopefully someday I will find the easy business, because no matter who I talk to on the inside even the best looking business is tough.

    1. pointsnfigures

      government employee. easy business.

  40. Kimberly

    If this article is true about Living Social then it really emphasizes what you are saying:

  41. andyswan

    According to the people that know me best, empathy is not my strong suit, so I’ll leave the whining about what I thought was a tongue-in-cheek final paragraph to the rest of the commenters.I will say that most venture capitalists are drones. There is a very short list of professional VCs that could get hands on my equity. The rest strike me as probable negative value-adds. Far better to have the backing of 6-8 local, connected people that will work for their equity return than one C-level venture capitalist that spends 90% of his day trying to talk his LPs into re-upping.The chart is meaningless. It’s a collection of bad startups and bad VCs. Who cares about the average. You’re here to be exceptional and you know there is no time limit to getting there.Fuck the averages.Win.

    1. pointsnfigures

      I have seen a trend toward entrepreneurs that want to take a broad base of capital, but really want local involvement because in the early stages local investors can have the most impact on a business by creating customers and connections. A good angel or investor will do that. Problem is, most don’t and then bitch about being left out of the loop or helpless. Or they say the entrepreneur wasn’t “coachable”.On the other hand, if you are going to be an involved impact investor from the day you write the check-the entrepreneur has to be comfortable with that. A lot of times, entrepreneurs just want the money and be left alone.

    2. Carl Rahn Griffith

      Well said. When I was scouting for funding for my startup (RIP) I was staggered at how many VCs knew so very little about the markets/technology we were discussing – not a problem in itself, but rather than be open with their ignorance and transform it into one of learning and curiosity they simply adopted an arrogant/patronising stance.

      1. falicon

        I have found personally that ‘pitching’ is probably the worst part of the current startup world…I love to talk ideas, I love to talk business models/startups, and I love to talk tech…but for me at least, pitching is rarely any of that (likely, at least in part, to me just being bad at it).In talking with lots and lots of startups (and investors) over the years…I’ve come to the conclusion that the real trick is to only pitch those that are pre-sold on an idea — that is they have been wanting to build/fund your thing for awhile now and have just been waiting for the right company to come through the door and ask for help (especially in the really early stage market where I tend to be most interested).

        1. bernardlunn

          Totally agree. Pitching is all mouth no ears. Can only learn from conversation.

        2. JLM

          .When you turn 50, you have to start getting your prostate checked regularly. The digital examination is a fabulous bonding experience. Not the least bit awkward.I have raised gobs of money and you would think I would get used to it.Prostate exam?Pitching for $$$?Toss up in my book. Some stuff is just not that much fun. Could just be me.JLM.

          1. falicon

            Sage insight as always.

          2. JamesHRH

            The intrusion / intimacy ratio is about the same?

          3. JLM

            .Both invade your dignity and comfort zone but in different ways.Further affiant sayeth not.JLM.

        3. Matt A. Myers

          Bingo! Otherwise you’re teaching them why what you’re doing will work, versus them having learned it on their own.

        4. Kirsten Lambertsen

          That’s called pre-qualifying your leads 🙂 Pitching sucks when you’re talking to people who aren’t interested. If you do your homework to pitch the right person, it’s a buzz.

        5. ShanaC

          so basically a startups job is to presell before they raise money 🙂

        6. Donna Brewington White

          Interesting. I’m reading a book on recruiting called The Rare Find which includes as a premise that the traditional ways of interviewing and hiring may preclude companies finding the more obscure gems who in the long run will be acutely valuable. I wonder how this works in VC. Are the best companies always the ones with the best pitch?

    3. JLM

      .There is a reason why you are an entrepreneur. Successful entrepreneur. Love it.Well played. Style points added.One semester more in charm school?JLM.

      1. andyswan

        @JLM I’m far more palatable live, with the Southern draw….or so I’ve been told.

        1. Carl Rahn Griffith

          Accompanied by a wee dram, or two? 😉

        2. Donna Brewington White

          And the flask doesn’t hurt.

      2. LE

        “One semester more in charm school?”(One of the most successful social change campaigns was “we’re here we’re queer get used to it”.)My mantra has always been that I’m not running a popularity contest and I notice that in Andy and it’s one of the things I liked about him from the start.

        1. FlavioGomes

          “If you want someone to like you, get a dog! Aim for respect”

          1. LE

            How coincidental. Just this morning I brought this work of art to the office.

          2. FlavioGomes

            Love it!

        2. karen_e

          This is no rebuke on Andy, whose style is all his own, but one of my favorite themes of JLM’s is his insistence on niceness. I see how it can pay dividends in negotiations. Also, I remember studying with Southern girls who modeled “kill ’em with kindness.” There are no ladies more successful (and sometimes brutal) than those who never seem to utter a derogatory word.

          1. LE

            “but one of my favorite themes of JLM’s is his insistence on niceness.”I don’t know anything of JLM other than what I read here. He may be that way in business or he may not. Please keep in mind that people’s personas change depending on the circumstances and what they are trying to achieve. What you are seeing is the way JLM portrays himself in writing on AVC (once again unless you have had business dealings with him and know him personally) . I suspect though from my many years with dealing with people that he does what is in his best interest if he is successful. Now he may go about doing that nicely of course and that may soften the blow but a soft landing or feel good words (to an entrepreneur or a family) does not allow someone to feed their family.

          2. JLM

            .I almost always wear a linen pocket square in my suit or blazer pocket. I think it to be the mark of a gentleman.I always conduct myself as a gentleman in business.It is good business to be a gentleman. People want to do business with you.A major institution once told a huge competitor of mine that they would take my handshake before they would take a 50 page contract and a check from them. It was the Trammell Crow company.Being a gentleman — “being nice” — is not a business decision, it is a personal decision. It is a lifestyle decision. It is really a very, very easy decision.But it is also and always damn good business. After a few years, it is a habit. A hard habit to break. Not even a second thought.Is everyone I rub up against a charter member of my fan club. Hell no. But it works for me.I never have to remember who I am supposed to be.JLM.

          3. Carl Rahn Griffith

            Troubled egos are usually a sign of low-achievers/the socially inept – you’re certainly neither of those, sir!Love the closing line. So true…

          4. LE

            “I almost always wear a linen pocket square in my suit or blazer pocket. I think it to be the mark of a gentleman.”My approach (to each his own of course) is totally different. I got my first big deal (competing against Xerox in suits) wearing a down vest and dungarees. At the time this was pretty much unheard of in business (at least when competing against professional sales persons). Not like it is today with startups and current modes of casual dress (as I’m sure you can attest to other than tradesmen of course). This was way before “casual friday”.I find that (for me once again) it works. People totally underestimate who they are dealing with because they make a snap judgement from appearance. So I use that to my advantage.What I do in a particular case totally depends on the term of the relationship. I think I am always “nice” (means different things to different people of course) but if the transaction is with someone I will be dealing with regularly or if reputation matters then I will act appropriately. If the transaction is “one off” and the other side is acting difficult I have no mercy. I always try to get what I want being nice and strategic by outsmarting the other side. I don’t get what I want by being a bully that’s what you do if you don’t have a brain. My dad always said “argue it like a lawyer”.Many years ago I bought a condo and the owner didn’t show up for closing they did their part by email. They sent an agreement telling the title company to get my signature that I agreed to give them money that was forthcoming from the condo assoc. when it was received. Wasn’t something I ever agreed to so I didn’t sign the document. The deal closed and then maybe 5 mos. later I got the check. They called and asked if I could send them the check and I said I wouldn’t. They screamed absolutely bloody murder about the incident all the sudden all the niceness they had before went out the window. (Forgetting that I was right for a second) I had no mercy on them since I didn’t intend to deal with them ever again and hey, money is money. Had I had a closer tie to them, known them, done other business with them I would have acted differently. (Just like the mortgage broker who called me yesterday and needed to bump my rate up I could have gotten him fired for somethings I know about how he handled the deal but he’s been nice, I feel sorry for him, and I hope to do other business so I’ll let it pass. He’s a fuckup and he admitted it so I will let it pass.

          5. Donna Brewington White

            “I never have to remember who I am supposed to be.”That is the type of integrity I aspire toward.

          6. Rohan

            Integrity you have no problem with, Donna. That’s for sure.

          7. Donna Brewington White

            Thanks R. Hug.

          8. awaldstein

            Yup…I’ve done business with both extremes. Pound on the table with a shoe (yes really!), beat you with their current position of power and tell you to sharpen your pencils when you are ready to face reality, and just smart, cool insistence.When I negotiated distribution and software licenses for entertainment products and games in Europe, the best as a group were the French and Eastern European women businesspeople. I know this is a generality but it just proved true time after time. Control, poise and demeanor. Hard work to get something done on time that was a win.

          9. JLM

            .I am waiting for a tradesman, so I will give you a little insight into how I think about things and how I do them.Early in my Army days, I had to do some odious things. I had to decide who carried certain weapons or a radio or some other thing that was tantamount to a death sentence, maybe.I had to notify Moms that their babies were dead. I had to deliver dead sons to their Fathers.You think “being nice” is the high hurdles? Not bloody likely.I resolved to be absolute best that I could be in that business — the business of soldiering. It was a moment of epiphany. I was in my early 20s. But I had seen seen some shit by then.I was a complete absolute prick as it related to training in peacetime in order not to have to bleed in wartime.But I was so completely absolutely resolved to do it, I did not have to negotiate with myself because I knew that certain outcomes were unacceptable.Once I took a company of 200 men out to the rifle range and told them all — we are going to sleep out here until every single SOB in this unit shoots EXPERT on every assigned weapon because it may save your life some day. And that of your buddies.In a couple of days, about 85% had shot EXPERT and the remaining 15% were not making great progress. They were still making progress — just a bit.Army wide average about 25% fire EXPERT.I had not a single cross word with anyone. I told the Exec Officer, Plt Leaders, the 1SGt and the Plt Sgts — without an ounce of emotion — it shall be done as I have ordered. Period.Within 3 days, everyone had fired EXPERT.We had a blast. Cooking out under the stars. Wisdom of the campfire every night. Really a bit of fun. Sun comes up in the morning and 200 men are blasting away all day.The 1SGT was the first one to get it. I was not going to budge one inch. Ever.I told him exactly why — face to face, man to man. Not a word of angst or emotion. Just as nice as I could be.Mind you, I had other things to do.Was I a “nice” guy — sure in my personal mannerisms. I was a perfect gentleman. I didn’t get in the NCOs way and let them work the guys who were struggling. They trained them.Thereafter that unit bragged that every SOB had fired EXPERT. The entire post was abuzz with it. The Commanding General sought me out and bought me a steak at the O Club.And I learned I could get what I wanted, if it were important enough, and still be a gentleman. Still be nice.Am I a “nice” person? Or am I a prick?Well, I am an absolute prick. I just go about it in a nice way. And why the Hell not? Because I am going to get what I want if I want it hard enough.JLM.

          10. Carl Rahn Griffith

            I know I’d have wanted you on MY side, JLM – that’s for sure!

          11. takingpitches

            “Well, I am an absolute prick. I just go about it in a nice way. And why the Hell not? Because I am going to get what I want if I want it hard enough.”Well-played guiding philosophy – JLM!

          12. JamesHRH

            One of your best posts, as it lays bear your core philosophy. In short bursts:- But I was so completely absolutely resolved to do it, I did not have to negotiate with myself because I knew that certain outcomes were unacceptable.- And I learned I could get what I wanted, if it were important enough, and still be a gentleman. Still be nice.There you have it.

          13. Rohan

            I guess being liked and being respected are two different things.And it helps being clear what we are shooting for.

          14. JLM

            .Good insight, Rohan.Personally we all want to be liked but really who GAS? Not me.Respected? Sure it gives one a bit of a glow.Doing the right thing when you know it is the right thing? ABSOLUTELYIn the instance above, there was another benefit. When I ORDERED folks in the future to do things. They obeyed me.When I inherited this company its rolling stock — huge bulldozers, dump trucks, front end loaders, graders, cranes, a couple of CEVs (combat engineer vehicles, M-60 tanks with huge bunker busting guns), trucks, jeeps — was in atrocious condition. Less than 50% was ready for duty any given day.I told the platoon leaders, platoons sergeants and the motor pool sergeant that everything had to be fixed, perfected, demonstrated and inspected in 90 days.I did not cajole, reason, explain or beg. I just ordered.The motor pool sergeant looked at me and said with a bit of a smile: “This going to be like the rifle range thing, sir?”I said: “Yes.”It was done.I went down to the motor pool and conducted an inspection. Started up and ran bulldozers, drove dump trucks, fired up chain saws, ran mine detectors. Took three days.About 97% of the stuff worked. I gave them 3 more days to correct deficiencies.In life you do not get what you “expect”, you get what you “inspect”.By complete serendipity, about a couple of weeks later, we had a surprise ARTEP — Army Training and Evaluation Test Program.They looked at all the rolling stock and they took about 50 men to the rifle range and tested them — amongst other things including conducting some tactical tests and problems.The company, which had never passed an ARTEP in the last 5 years, made a 100%, the highest score in the Army that year.During the de-brief, the testers and graders were falling all over themselves with disbelief and praise — it is very easy to grade a company when all you do is check a single box. Makes their job easy.The brigade commander, who would later command all Spec Ops in the Army, asked me what was the special sauce?I said: “I just did my job. The men did their jobs.” We both laughed.We had very high esprit de corps in that unit and the re-enlistment rate was off the chart. Even a few draftees re-enlisted.When I turned that company over I cried. The men gave me a very nice gift — an inscribed demo knife, the basic tool of a combat engineer and something that only enlisted men typically carry.Each and every man came up, saluted and shook my hand. Even men who I had put in the stockade for misbehavior.Remember I was still a kid, only in my 20s. But everything I ever needed to know to run a business, I learned running that company.Doing the right thing in every situation will always work out. Get what you inspect.JLM.

          15. Rohan

            Ha. That makes perfect sense. Thanks JLM!

          16. andyswan

            I like your style, Karen

          17. karen_e

            Do you watch Anthony Bourdain, Andy? The Seattle episode of The Layover had a #Pappy product placement. I thought of you. I’ve never tried it, but I do like whisky. (And I like spelling it like a Scot.)

          18. FlavioGomes

            Its not about being mean…nor is it about losing a sense of compassion. Its about fair play and decisiveness.

          19. Kirsten Lambertsen

            +1 I believe in being nice, for real. It doesn’t have to mean being weak. I think nice is making a comeback.

          20. Richard

            It would be nice if it worked this way

          21. Donna Brewington White

            I so know what you mean.Even though I have many Southerners in my life, they somewhat mystify me. Plus, I’m married to one.

        3. Dave Pinsen

          “(One of the most successful social change campaigns was “we’re here we’re queer get used to it”.)”No it wasn’t. That slogan was in vogue during an era when transgressive elements of the gay community were in the lead. It didn’t lead to much social change.What preceded the current, unprecedented, level of social acceptance of homosexuality (as exemplified by the recent legalization of gay marriage in various states), was an entirely different tack by gays. Not angry street protests, but “Queer Eye For The Straight Guy”; not accusations that a beloved president (and not rampant, unprotected promiscuity in the gay community) was responsible for the AIDS epidemic, but pleas that gays wanted what everyone else wanted: a house in the suburbs, a spouse they could publicly commit to, etc. Charm won.

      3. JamesHRH

        One more would bring Andy’s total to……..

    4. FlavioGomes

      Yeah baby!

    5. LE

      “According to the people that know me best, empathy is not my strong suit,”Having to much empathy can actually hurt you in business so that’s a good thing. Some of the mistakes that I’ve made were from having to much empathy.”Fuck the averages.”Not to mention that you can always make numbers say anything you want.”what I thought was a tongue-in-cheek final paragraph”$10 bet says it wasn’t! I say Fred knew what he was saying and further was actually looking to get drubbed over it knowing full well he would get flak. I sometimes do the same thing when I haven’t fought with my Dad in a long time.”There is a very short list of professional VCs that could get hands on my equity.”What about FirstRound? I’ve thought about emailing them about if Fred doesn’t make the investment.

      1. andyswan

        Any institution that had Charlie O’Donnell as a member will get a fair hearing from me. Appreciate the intro.

        1. LE

          My loyalty is to Fred and although I am devious I am always loyal to my business contacts (just like Hyman). So as soon as there is a symbol or a message that he is not interested in investing at that point…Side story (for Max Yoder). Someone locally asked me to help them sell a small business. I thought that my brother in law’s brother might be a good fit for the business. So I called my sister and asked her for the number of (her brother in law as if I couldn’t find it on my own). She was upset and wanted to know why I wasn’t turning such a great opportunity on to her husband instead. Of course I knew that it would be of interest to her husband as well. So now I have two people interested instead of one and a jealous rivalry of brothers. As you say people like to win.

      2. JamesHRH

        If you are right about Fred’s intent, I bet he is looking for a pearl of wisdon or a ray of insight amongst the vitriol.

      3. fredwilson

        i knew what i was saying but i failed to realize that it would come across as my asking for empathy for me. which was not my intention.

        1. Pete Griffiths

          You made the mistake of speaking ironically. As Brits moving to the US soon discover, tongue in cheek remarks are commonly misunderstood.

    6. falicon

      “There is a very short list of professional VCs that could get hands on my equity”Same boat here for sure. In fact, there is a small percentage of *any* outside money that I would/will take to build a company.I’ve always been forced to just bootstrap, hustle, and figure out way for customers to fund the business…it’s hard, slow, and often insanely low margins for years longer than I would like…but it’s also pretty rewarding and feels more like freedom than anything else I’ve ever experienced.

      1. JamesHRH

        customer funded businesses generate an entrepreneur’s best returns, that is for sure.

      2. Charlie Crystle

        I’ve bootstrapped a ton, and I have to say that once the model is baked and there’s good traction and serious vision, it’s worth taking on capital to accelerate if it’s cheap enough and interests are aligned.But taking from the right investor/investors is key. Some people are in a great position to do that; I feel for the others, though.

        1. falicon

          That makes a lot of sense to me as well.Looking back, I should have gone that route with statsfeed back in the day…but it was prior to me even knowing there *was* such a thing as VC in the world. So I had no knowledge of or connections to that world. (when I hit the tipping point for where I could scale it on my own, I kept it there for a few years before deciding I wanted to focus on other things and let it slowing fade down to nothing)Looking back on Draftwizard and Supermug, I couldn’t ever get them to really scale because customers were paying but not enough to be funding growth (they were my 1st own business efforts so I prob. spent a year or two too long learning the lesson there — still worth it)Looking back on, we should have skipped trying to get funding and focused on building something the customers would fund first (we had a product people loved, but we had no customers).So – this time around…building something that a small set of customers can help fund from the start…that people love (hopefully)…and if/when we hit a tipping point, we’ll look for specific outside help (if we don’t hit a tipping point compelling enough to get us help, then it won’t be the next huge overnight success but it will continue to exist in a self-sustaining matter)…either way, when I look back on this one, I expect to say “we built something lasting and useful”…

          1. Charlie Crystle

            sounds right

          2. JamesHRH

            That is the impact target.

          3. Donna Brewington White

            Can’t wait to see how this all pans out.

    7. JamesHRH

      I had the same thought on the chart – everybody knows that average VC blows and awesome VC rocks their returns.I think the sentiment underlying Fred’s post – and he has hinted at this in the past few years – is that the VC game is changing.He has also said that he is doing something he has never done before – starting a new 7 year cycle without starting a new firm.

      1. fredwilson

        i am starting to get my head on straight about the next seven years. starting to.

        1. Yaniv Tal

          your next fund might touch businesses built on top of self driving cars… or better yet, self driving electric cars. how exciting is that!

    8. William Mougayar

      The chart is just a reflection of reality. But you’re right that it’s not something you follow. Rather, you need to escape it, and you fight against it every day, whether a VC or entrepreneur.

    9. takingpitches

      Love it. Aim to be the exception that complicates the rule!

    10. fredwilson

      not to dismiss all the whining about my tongue in cheek final paragraph, but this is my favorite comment in this thread. you are 100% correct.

    11. Donna Brewington White

      What do you look for in a VC, Andy?

  42. Richard

    USC ROI (compensation) suboptimal, USV ROI (life’s impact) priceless.

  43. JLM

    .Totally inappropriate video. Totally.In my next life, I am coming back as a starfish. See why.Screw the entrepreneurial life, become a starfish. Better benefits package.…Just trying to cheer up the gloomy mood today. Sorry. I know this is wrong — very, very, very wrong.But, hey that’s the kind of shallow guy I really am.JLM.

    1. Carl Rahn Griffith

      Makes more sense than the SOTU … 😉

    2. FlavioGomes

      Ay Caramba!! that worked! Feeling much much better!

    3. andyswan

      I found this uplifting.Side note: There are a lot of bikini models. There is only one Kate Upton…because she actually looks happy. People are drawn to happy. Be happy, FFS.

    4. JamesHRH

      Bad dog.One of the lady patrons – say @ShanaC:disqus – needs to post something 6-packy in response.

      1. JLM

        .I agree. Everybody walks on their side of the street.Today, I throw in with the starfish.JLM.

        1. JamesHRH

          I am not opposed.Today’s forecast in Sarnia is 15 degrees with a chance of snow squalls off of the lake.Starfish are nice.

          1. FlavioGomes

            just checking…Farenheit?

          2. JamesHRH

            yes, talking Tx temp

      2. ShanaC

        err, I’ll call him out, but I am not that type of lady. I don’t have that sort of stuff lying around.

    5. LaVonne Reimer

      JLM you continue to intrigue. I fell for the link. First reaction was, seriously? 6:40? Who watches one woman romping on a beach continuously for 6:40? Oh, right! I don’t have a 6-packy counter but I just saw this commercial for meds that might inoculate VCs and entrepreneurs from over self-absortion. Here you go.

      1. JLM

        .That’s one of the funniest things I have ever seen. Very well played! Indeed.VERY WELL PLAYED.JLM.

        1. LaVonne Reimer

          Glad you all enjoyed it! I think it was intended to make fun of PDX, a city in which I’ve spent a ton of time but it seems to transcend just one place. The symptoms list was great, as someone who used to make her own mayo.

          1. JLM

            .I will see your mayo and raise you my pesto.JLM.

      2. FlavioGomes

        turned into 20min after a few repeats and that counter was hilarious

      3. Jim Ritchie

        Filmed in Delores Park in SF, my home town, and ground zero.

    6. ShanaC

      JLM, one of these days I need to have a bouncing guy in a video for these sort of moments….

  44. Arlo Gilbert

    Do any funds produce consistent 20% returns? Averages are meaningless for this type of analysis, lets see the medians.

  45. InspireTen

    It can’t just be about the $, it’s the dream and hope of creating something worthwhile, doing it well and bringing others into the dream.

  46. Sean Smith

    I always wonder if its fair to look at industry averages in an area where returns are basically a power law. Also, it’s no secret that the space has been overfunded for the last 10 years.

  47. ErikSchwartz

    I’m seeing a lot of huge late stage rounds that I am betting will be flat to down unless they sell to a greater fool VC later on.There was a big one yesterday

    1. $27180517

      Google Ventures…still underwater from zynga investment after getting in late in the mid $8 range

    2. William Mougayar

      I am seeing higher rounds too. Not sure it’s a good sign necessarily. For some, it will be OK because they are funding their growth. But for others, not.Which one were you alluding to?

    3. Richard

      living social?

  48. John Revay

    Word of the day on AVCEmpathy…

    1. falicon

      OK – this earns my +100 by default 😉

  49. Charlie Crystle

    Looks like the 2/20 model is a kind of welfare for venture capitalists who can round up the capital but can’t place it with good companies 🙂 (ouch!)But really does look incredibly hard to do well.I’ve been kicking around the idea of starting a seed fund and possibly an accelerator–partly to help the city I love (one of them) and partly to create 10 years of new pain for myself ;)And then, of course, I realize that 1) it’s really, really hard to pick winners and 2) I’ve never had a successful investment in something I haven’t run.So…yeah. It seems incredibly hard. So back to the grind, I guess 🙂

    1. LE

      “I’ve never had a successful investment in something I haven’t run.”I think part of the solution is to identify investments that you can take a role and will welcome your advice or at least consider it. Anecdotally I’m amazed at the VC model (but fully understand it since it’s based on big wins) and how they are appear so hands off either because they don’t have any idea about the nuts and bolts of business, don’t have the time, or haven’t set boundaries with the entrepreneurs.Personally I wouldn’t give a dime to anyone who wouldn’t consider my advice or at least offer reasons why the advice was wrong or wouldn’t work and debate the points. Especially if they had essentially zero business experience.I have no doubt that VC returns could be improved by helping the entrepreneurs with resources needed to build better companies and products. I’m surprised this isn’t being done leading me to believe there is something I’m not considering here because all I can think of is “doesn’t matter since it’s all about the big win”. But that thinking flies in the face of how you create a successful business which is attention to the small stuff.

    2. awaldstein

      Funny…I have a long string of sweat equity investments from gigs over time. My rule is if they pop, sell and move on as as well, with no skin in the game, i’m just betting and I don’t like gambling.

    3. Kirsten Lambertsen

      You should do it 🙂 I’ve seen first-hand what it can do for a local economy/culture.You wouldn’t be on your own choosing the investments, would you? You could even offload that responsibility to others who have more of a feel for it and play more of an advisor/mentor role.The accelerator I went through in Providence is the pulse of the city. It’s a beacon!

      1. Charlie Crystle

        I would definitely have some help.

  50. $27180517

    Historically these numbers are about in line with the average return for VCs…its always been an asset class that has underperformed. But then again, those winners few and far between, have won BIG. So there will always be that mentality to keep chasing the whale even though minnows are what gets caught the vast majority of the time. Fred I think you’ll agree that the Indeed exit was quite nice for USV.

  51. Dan Cornish

    There are two types of VCs. Hobbyists and Bankers. Now hobbyist has a bad connotation but I think it is far better, and what I mean by it is that they invest in companies because they LOVE investing in companies. They know no other way to live and could not work in any other industry. All of their life is focused on starting and building companies. They enjoy being around founders and actually socialize with them. They have figured out how to get other people to fund them, because the people who love what they do are usually very good at what ever they choose to do.The other group is bankers. These folks are only interested in transactions. They really do not belong in early stage investing at all, and the ones who do get involved are the VCs who give VCs the bad rap. Bankers are really boring people and few founders would want to hang out with them.The hobbyists are few and far between, but I bet they have the largest returns by a long shot. Just a gut feel, I could be wrong, but loving what you do is the path to a happy life. Bringing on investors sets a company on a path that is different than the path before the investment. I would much prefer being on a path with someone who enjoys what they do. The money is just the applause for a job well done.

    1. Carl Rahn Griffith

      Trouble is, many of the bankers are really hobbyists but suppress the pros of being one (ie, a desire to learn, communicate and enthusiasm/energy) and retain the facade of being a self-appointed-master-of-the-universe-god-banker.

    2. karen_e

      I’m with you, Dan – and I think it applies to any profession. There are always those who have that light in their eyes, who would do what they do no matter the wage or salary.

    3. fredwilson

      i would call the hobbyists “entrepreneurs”

  52. Giacomo Balli

    IMHO these numbers are useless. They contain so many different contexts, markets, trends etc that they don’t allow you to “assume” anything

  53. Guest

    Fred.. I see where you’re coming from but I think your post glosses over too much:a) averages dont matter in this game, especially not when including biotech/healthcare/etc. you are exceptional, and we’re all aspiring to be exceptional. adjusting b) there are *many* different types of VC – more than half of us think ‘client’ and ‘server’ are restaurant-industry terms. these folks still feel qualified to pump out advice like hand sanitizers at Targetc) being a VC is by and large a choice, whereas most folks are pushed into entrepreneurship. If the VC is a bad VC, there’s no reason whatsoever to feel *any* empathy. it was that person’s choice to take a job that assures salary and societal respect while delaying any real “judgement” by 10 years. realistically, all bad VCs do is throw someone else’s money after someone else’s hard work and hope they match while doing as little work and claiming as much credit as possibled) like others have said, empathy begets empathy. good VCs are humble and know they can be wrong as often as they’re right. more importantly, they realize there is a person sitting on the other side of the table, which is at once a duty to be honest and a responsibility to be kind.i personally “pre-salt” everything with entrepreneurs, always explaining how my own biases and world-views may be impacting my perspective on their problem.

  54. Evan

    I’d have more sympathy if the data tells the same story when you exclude biotech and cleantech.

    1. Carl Rahn Griffith

      Very good point, Evan. Both sectors are very much a long-game and require very high initial capital-expenditure, with regulatory issues aplenty, distribution/logistics overheads, etc, etc.

    2. Richard

      not much biotech last few years

      1. Evan

        OK, just exclude greentech, and I bet the numbers don’t look as mediocre.

  55. William Wagner

    Not surprising, VC / “entrepreneuring” is the biggest circlejerk in history, the money goes to the entrepreneurs with the most frosting on their turds

    1. Carl Rahn Griffith

      See @umairh’s recent thread on Twitter – some interesting asides re: SV/etc.

  56. Jim Shook

    Would be interested to hear more about why @fredwilson:disqus thinks the majority of early-stage funds have underperformed (especially given risk profile).

  57. Dasher

    Andreessen Horowitz guys say there is no VC industry. It is basically the top 10 VCs that produce majority of the returns and people know who they are so talking about the VC industry is an asset class and giving average returns they say is not so meaningful. Fred, what is your take on that?

    1. fredwilson

      well most of the top ten firms weren’t in the VC business ten years ago

  58. matthughes

    Who actually thinks VC is an easy business?It seems like a gut-wrencher to me.

    1. Carl Rahn Griffith

      Entrepreneurs 🙂

  59. Carl Rahn Griffith

    Physician, heal thyself.

  60. Steven Kane

    i do feel a ton of empathy.and then i remember — the vast majority of GPs are paid huge compensation whether they succeed or fail. i mean, 20-25% of every venture fund raised goes to management fees, so the typical GP makes what, $500K, and at larger firms, $1MM salaries? plus gorgeous offices and assistants and first class travel and catered lunches and expense accounts. and all to underperform vanguard index comparison, entrepreneurs are paid paltry compensation for taking the same risks, but in an intensely more concentrated way (founders do 1 deal every few years; GPs do several deals a year.) maybe $100K salary (if they are lucky) with few if any cushy perks.then again, maybe the VC returns are poor precisely *because* fund management fees are so darned high and compensation is huge and disconnected from performance. after all, given management fees, the returns you cite are based on GPs investing only 75-80% of every dollar they raise. simple math says the returns would be much higher if GPs invested in exactly the same deals but invested, say, 90% of dollars raisedfeeling nostalgic fred — i havent made this rant on in a while! 😉

    1. Carl Rahn Griffith

      I still haven’t founded what I’m looking for…(Sorry, Bono).Sorry for duplication, also – Disqus seems to be acting rather oddly (again).

    2. Guest

      I still haven’t founded what I’m looking for…Sorry, Bono.

    3. fredwilson

      anything to get you back here Steve!

    4. ShanaC

      welcome back. 🙂

  61. David Petersen

    I have nothing but empathy for VCs. Trying to pick early stage startups seems like mission impossible.Then having to say no to hundreds or thousands of passionate entrepreneurs, and have it rubbed in your face when some of them inevitably become huge successes.I guess they make a healthy salary and there is the perception that they don’t have to work that hard, but anyone who has made a healthy salary can tell you that it doesn’t go that far towards relieving the stress of a hard job.

  62. Youssef Rahoui

    Interesting. But I doubt that in this particuliar field averages are the best way to get insights on what’s really going on. On average, startups fail but those who win win big. So I, at first sight, I find it quite understandable that companies that invest in startups follow more or less the same pattern. It would be really interesting though to know the firms, the sectors to get a better picture of the situation.

  63. Walter

    Who says venture capital is an easy business?

  64. Juri von Randow

    High risk = high return?? Wrong. High risk, higher volatility, so maybe high return or maybe higher loss. In each game you have to pick the right horses to outperform competitors. The reason why equity on average in certain industries outperforms venture capital? Maybe because venture capital less information, less flexibility or the analyst just compared the wrong official equity indices with ‘venture capital indices’. Nothing is that simple and the motivation of that article rather questionable…

  65. Kirsten Lambertsen

    Re the last paragraph: I expect to be soon, and I will 😉

  66. Julian Taboada

    But does this post take into account the disparity between subset of top venture firms and the many lesser ones below? I suspect there is an 80/20 effect of the handful of best firms claiming enormous returns, while most are subpar and will go out of business once their funds mature.

  67. Derek

    I’m curious what “average” means in this context. Is this the average return on total funds invested, or the average performance of each firm? I expect there are a lot of relatively tiny funds that, regardless of performance, would not really move the meter on total returns in the asset class. But they could have a serious effect if the returns aren’t weighted.

  68. Chris Phenner

    I was reading this post, checking out the data set, nodding my head, and genuinely surprised to see how low the returns have been. And I knew this was a setup for a closing point, although I had no guess as a reader as to what the point would be.And then I saw the ‘Call for Empathy’ in the last paragraph and the corners of my mouth sank — of all the directions to take the post I did *not* expect that angle. And I saw the 200+ comments, and without reading a single one, knew the grenade had already blown. Of all the ‘closing arguments’ to choose!Fred works hard in a tough business and I will give Fred any empathy he requests, but as his literary agent and long-time reader, I can’t agree with that ‘closer’ as a good move from a storytelling standpoint, sorry 🙂

    1. fredwilson

      you are right!

  69. Richard

    fred, (dont be so quick to apologize) its not like u asked for sympathy from others. you asked for empathy – that is based on the 10yr returns to put themselves in your shoes, sharing the pain, frustration and yes, joy of being the steward, the decision maker of others peoples $$.

  70. Prateek Panda

    A very well written and candid post indeed. In fact what you have mentioned is exactly one of the major reasons why VCs refrain from investing in early stage companies, especially in countries like India. We have so many startups coming up, but the higher uncertainty associated with early stage startups is what keeps VCs away from them.Sad, but true!Will be sharing/reblogging your post at (

  71. Nigel Scott

    As I explained to Chris Dixon last year if you map the US economic data against US VC investment patterns over the past 20 years (see charts here… you’ll discover VC’s are generally late entrants into economic cycle. So much so that VC investment is more of a lag indicator of innovation in the US economy rather than a lead indicator. This I suspect is primarily because of the time it takes to generate investor awareness in the emerging opportunity, raise the funds and then allocate those funds to suitable opportunities. It may also explain the correlation in performance between the market indices and the late stage investments.

    1. Aviah Laor

      Wow, that’s a really interesting insight. Not trivial. Maybe worth a post. Your explanation about VC late to the game covers the capital side, but not the venture part (from the free dictionary online: venture An undertaking that is dangerous, daring, or of uncertain outcome)

  72. Capitalistic

    Principal investing, in aggregate, is no longer that lucrative for LP’s. It’s lucrative for GP’s. Even healthcare or tech focused funds aren’t doing that well, so that means these funds are investing in sectors that will help them explain their story to LP’s.The recent explosion of VC/PE/HF’s means that these funds need to invest in companies/founders that would be easier for them to explain to their investors. Most of these funds are chasing the same deals. How can you expect alpha when you’re seeking low beta investments in a high beta playground?VC’s should simplify their business model. We’re working on that as we speak.

  73. Philip Wilkinson

    If VC’s had their ‘entire’ pay linked to performance then I can partially emphasise BUT partners and principals get paid high fixed salaries no matter what to ‘run the fund’ and work in plush offices. The bonus of funds doing well are exactly that – your bonus.Contrast that with an entrepreneur who gets nothing unless it all works and even when it shows good signs, investors nail them into taking lower salaries for the ‘good of the cause’.Make your pay 100% based on the fund succeeding and then maybe it would be fairer against entrepreneurs and your institutional investors

  74. aweissman

    Venture investors put money into unproven companies, led by improbable founders, in untested markets, with wholly illiquid investments. Don’t know what feeling that should engender but the anti-VC mentality has always confused me.That being said at my last “company” we completed a round of financing while we had literally $0 in the bank so I had to play the-hold-off-paying-bills-game while cursing the investors who were giving us millions of dollars for a wacky model. So I guess I understand it too.

    1. fredwilson

      We take equity from founders and often don’t provide enough value back. I get the antipathy. And I think we should internalize it so we never do that ourselves.

      1. William Mougayar

        That’s a good topic to further dive into.

  75. Jonathan

    I am not in the VC, VC investor, or a start-up business…just an interested bystander. It seems to me that the Cambridge Data is largely crap. Isn’t being a VC akin to the ultimate stock picker? The Cambridge data is like looking at index returns, maybe large sectors at best. But unless there are funds of funds who invest just in VC partnerships (are there?), it is irrelevant. The variation around the returns would be much more interesting information. Do large firms differ from small firms? How about firms with more experience versus less? How about Sand Road firms vs, say, NYC or other places? Do firms with big initial wins go on to make more successful investments or do they protect their fund and go conservative (eventually leading to underperformance)?Investing in an underperforming VC firm is torture, picking the right one must be great. The same goes for working in an underperforming firms vs. one at the top. I don’t have much sympathy for VCs who do the “woe is me, the business is hard” thing. Nor do I feel the start-up guy’s pain when they are told their business model looks like junk — its the VC’s money. Go find someone else then.

  76. paramendra


  77. $27353950

    Interesting, but I suspect a few things in order to fill in the blanks: how do the last 10 years compare to previous 10 yr performance? After all from 2007 to now we are seeing some of the roughest climates to do business in since the Great Depression. And how much of the early stage stuff is based on tech companies? Since there is too much VC money being thrown at companies w/low barriers to entry for faster returns: perhaps those early stage investments are/were carelessly made. Color comes to mind. There’s been a lot of agreement and lots of money given to BS business models w/o biz plans and to those now being “mentored” by those who supposedly know better. That is the part that’s new and I would say or question if that is working. We don’t need another app in other words. Enterprise software appears to now be where it’s at, but even then, it has to work. I think you can throw out the last 10 years performance on most anything as the stock market is based on the wind and with all the unemployment and simply bad business environment how could your record on early stage be much better. Plus how many of those were invested in compared to the numbers of later stage: after a market has been established, proven, revenues coming in. Your acting like a bank: put 20% down and I’ll loan you the money for a 10% or more return.I think the graph is inadequate in showing the real story.

  78. cb

    These numbers are actually much worse than they may seem. Given that these returns are below a typical PIK on convertible preferred — not to mention follow on rights, liquidity preference, etc. — they are achieving these returns through securities structure, not by picking the right investments. In other words, if a company sells at their post-money valuation 5r yrs after the investment, i.e., no additional value has been created, the VC still gets a 7% annualized return, which is value extraction, not value creation. Second, these numbers are cosmetically inflated by booking their investment at mark-to-make-believe, namely the value their backscratching VC buddies ascribed in the last series. If you were to look through to realized gains as a percentage of invested capital, however, it would be a complete joke. No way most LPs ever get the money they put in back, and no surprise most of these jokers won’t raise another fund.I have met true princes of the VC world, mostly from an older era — Dick Kramlich at NEA and Bill Kaiser at Greylock to name two (never met Fred). The vast majority, however, are pompous asshats who believe that their ability to blindly follow groupthink is a sign of their ‘genius’, who take the same pleasure in condescension as co-op boards and nightclub bouncers, and whose real motivation is to milk their management fees until the jig is up. The jig is up: Good riddance to the asshats.

  79. johnlandry

    Fred.. with all due respect I find this closing paragraph really troubling..”So the next time you are bidding one VC against another, maybe you can feel just a bit of empathy for us. We are in a tough business, trying to make a buck to live to fight another day. Just like everyone else.”I’m sorry… VC’s are NOT like everyone else.. most get paid a fee of 2% of committed capital (not even drawn down capital!) EVERY YEAR regardless of performance. In a fund with a life of 8-10 years that’s a 16%-20% return on a large amount of OPM (Other People’s Money) in return for the ‘expertise’ needed to post up numbers that significantly lag the returns for the DOW and S&P ETFs. No entreprenuer I know gets those kind of rewards for woeful underperformance — they get fired by VCs like you. How ironic eh?Though I appreciate the introspection, this ‘like everyone else’ line is bull.

    1. fredwilson

      Most everyone in this thread objected to the closing so you are not alone in that feeling. And I will not defend it since so many were offended by it. But I will note that the fees only last during the investment period (usually four years) after which they decline quickly. Most VCs fail just like most startups. They don’t live to fight another day either.

      1. William Mougayar

        “Most VCs fail just like most startups. They don’t live to fight another day either.” Words of wisdom. I can see the road kills in about 3 years from now. Bad cycles or failures clean out VC’s same as startups. We saw that in 2001 & 2002.

  80. Dave

    I applaud Fred for having the guts to always tell it straight, from both sides. I’m not sure his intention was how the post read. Frankly, empathy for the VC business is a hard thing for me to get my head around, or at least, haven’t seen much evidence that VC’s reciprocate empathy for the entrepreneur. Curious how I see it….* Many VC’s make hundreds of thousands if not millions in salary and comp *regardless* of return on investment.* Many VC’s take money from institutions that have billions of dollars who allocate a small portion of their entire portolio to high risk VC investments.* Many VC’s, have *never* started a company or even ran one.* Many VC’s personal and reputational risk is padded by the overall firms reputation (you can be worst player on the Ryder cup team, and still be on the Ryder cup team)* Many VC’s have never looked their spouse, partner, or loved ones in the eye and said “I failed, I lost it all. I’m so sorry”* Most entrepreneurs risk their families savings and reputation to pursue their dream. No padding. You f’up, it’s all on you.* Most entrepreneurs stay up late at night panicking over the leap they have taken, and advice from people who said “don’t do it”.* Most entrepreneurs go without a salary for months or years to pay other people in the hopes of creating something meaningful.* Most entrepreneurs deal with *daily* rejection of their idea by millionaires driving Teslas with little more explanation or “empahy” than “we’re gonna pass”* Most entrepreneurs have to look their spouse, partner, and loved ones in the eye and say “I failed. I lost it all. I’m so sorry”Empathy is the capacity to recognize emotions that are being experienced by another sentient or fictional being. Let’s try to see both sides.

    1. fredwilson

      It is absolutely needed on both sides

  81. Jeremy Toeman

    I wonder if the industry would perform better if…1) they could abandon the herdlike mentality – it’s not that we don’t need 17 more ridesharing startups, but…2) they could learn to tell the difference between a good pitch and a good business strategy. sorry, but it’s true that some of the best pitches conceal terrible businesses, and some of the entrepreneurs with the best ideas can’t pitch worth a damn – but would still execute3) they could evaluate companies without asking for a cohort analysis. just maybe there are *other* factors one should look at?4) they could focus on iterative conversations rather than one-off pitches. perhaps if one has an issue with a distribution strategy, one should have a followup conversation diving into that topic, because there *just might* be an answer, rather than deciding there isn’t one.5) they could drop the lovefest with young engineers as “ideal” founders – they aren’t. not to say some of them aren’t going to be great, but so will older marketing guys, mid-aged sales guys, etc.6) they could put a little less stock into “serial” entrepreneurs. sure, *some* of them are actually successful more than once, but most aren’t.i’m sure i can come up with another dozen, but I’m sure one day i’ll pitch someone who read this comment, got offended by something, and won’t fund me, but instead will find someone who’s written really nice, positive, upbeat comments on all sorts of blogs, and is therefore a better candidate to build a successful – fred – literally none of the above is directed at you, as i’ve never pitched you. 😉

  82. Edith Wiethorn

    The ROI I would like to see in this comparison is the ROI paid by pioneering entrepreneurs to the *family & friends* & *angel investor* sectors of the startup finance spectrum. My average pay-to-play was 18-25% per annum – & I was working from the resource base of a major western resort, with a proven results-history & 120-acres of choice land as collateral. Back to the deadlines of the day … 🙂

  83. DanielHorowitz

    Why do you say that you need to win big in early stage investing? If you can invest at reasonable valuations then you can achieve good returns via the sub 50m m&a market. This is a big part of 500 startups strategy. You don’t think they will have good returns?

    1. fredwilson

      The strikeout rate in early stage investing is too high to hit singles and doubles. I am an LP in 500 Startups and I think they will do OK, but I would be surprised if they can do 3x at the fund level net to LPs with that strategy

  84. Steve

    And there is a survivor bias

  85. stevewfindlay

    Net returns post 2&20 make it even worse for investors… Leads to an iinteresting debate about how incentive structures could (and probably should) change.

    1. fredwilson

      These are net of fees and carry

      1. stevewfindlay

        Probably a moot point re carry, given the performance in the table anyway 😉 Having modelled fund returns and structures in the past its amazing to see the impact on LP returns by changing the fees by a few basis points. And the improvements in returns by providing some sort of yield- although not really appropriate for cash consumptive companies. Probably why recapitalisations drove over-leverage in the PE market ‘boom’ though.

  86. Rohan

    Nice topic, Fred.I realize the time of your post makes such a huge difference in terms of commenting. It used to work very well in London as the post typically came in around lunch time.In Sydney (I’m here for a few months on a project), it’s past bed time so by the time I’m up, there’s 300+ comments..!A few good threads this week.Happy weekend all!

    1. Donna Brewington White

      When that happens to me, sometimes I just end up responding to other comments in the thread and that way the conversation transcends the actual day of the post. I sometimes find myself interacting with comments from 2-3 posts at once due to the responses coming in from Disqus.Anyway, Fred still reads the comment even if not made the same day of the post.

      1. Rohan

        Heh. Yeah. His speed reading skills must be pretty darn good. 😀

  87. Donna Brewington White

    Your obvious love for your industry is one of the reasons I think you have been such an effective critic of it.Hopefully, the comments here won’t surprise you. Your own transparency has been part of our education and has raised the bar of expectations for VCs.Is it just me, or is VC ripe for disruption?

  88. Pete Griffiths

    A while ago on Quora, somebody asked the question ‘How much should startup founders be paid?’ A perfectly valid question.The answer that made a big impression on me was from a VC who opined that they should be paid a Ramen day rate. Still more revealing was his reason why – because at this stage they ‘haven’t proven anything yet.’ In other words, all they have done is started something.I totally agreed with this. But I did have a problem with the fact that the answer glossed over something that I felt was supremely ironic. From my perspective every VC fund is a startup. It’s great the LPs are on board and the agreements are signed, but all you have done at this point as a VC is start something. And yet in most firms VC firms pay their staff and partners extremely richly from their 2% right from the outset. This doesn’t make sense: For this fund at this point in its evolution why should you be paid more than a Ramen day rate? Sauce for the goose, sauce for the gander. Hence whilst it certainly isn’t an easy business, for many, they would appear to be significantly overpaid.

    1. fredwilson

      I don’t agree with that VC

      1. Pete Griffiths


  89. Bill

    Interesting data Fred. VC is a very tough business. With the massive skew in VC returns to the top handful of firms, isn’t the most logical conclusion that we need fewer VC firms? That is my conclusion whenever I see the data broken out by quartile. It is unfortunate because the ecosystem needs more capital, not less, but from an investment allocation/LP perspective it is hard to conclude we need more VC capital in the world.

  90. John Frankel

    Median returns in a high return dispersion space can be misleading.

  91. george

    If it were easy, everyone would become a VC! But then again, you could have gotten an average return of 5% on munis over the past 10 years!Hope the next 10 are the glory years!

  92. Kirk Coburn

    Is this the moment that sane person pulls the ripcord? As an entrepreneur first, I read this and think that we are in a buyers market. My investor hat says to move cautiously. But regardless, my heart says to follow my calling and invest my money and my investors with confidence that we will outrun anyone because we are where we are supposed to be and this will always and has always paid dividends.

  93. Qlazzy

    Great insights. As entrepreneurs we never think about this!

  94. Ralph Tice

    Startups are hurt more and recover less quickly by a recession than the general market? You don’t say…

  95. fredwilson

    Its a decent analysis

  96. unlisted

    1, 3, 4, & 5 I can personally relate to.