1. 95% of VC funds fail. In addition to your passion and commitment, bring operational experience to juggle investing in startups, fundraising, and running your small business.
2. In the VC model, labor is a scarce resource. If you build a larger Fund II or III, consider the toll a higher volume of investment deals will take on your labor force.
3. Most VC funds are under-diversified. You’re going to learn as you invest in startups and the world will evolve as well — give yourself enough flexibility to readjust, adapt, and take advantage of the opportunities that come your way.
4. When you’re in Fund I, you’re already raising for Fund II. Maintain close communications with current LPs and use their support to close prospective investors. If any investors step away, make sure you’re prepared to answer the question of why.
5. In the end, get ready for a lot of hard work before you see substantial payouts. Make sure you’re getting joy out of your work or don’t commit to this 10+ year path.
Your VC fund is a startup
Just like the startups you’re investing in. It’s a competitive, volatile environment with huge pressure to perform and high failure rates. How do you make it past Fund I to Fund II, III and beyond?
Based in San Francisco, RSCM has built a diversified portfolio of startups across the US. Before RSCM, Dave was the CEO & founder of both Acorn Computer and WorkMetro.
How Many VC Funds Fail?
That depends on your definitions of “success” and “failure”. Many funds break even or see modest returns on their investments, but that’s not good enough for investors or long-term fund performance. Data from Correlation Ventures suggests that 65% of VCs fail, returning less than 1x what they invested.
Others place the “venture rate of return” threshold at 3x returns and conclude that 95% of VCs fail to return enough to justify the risk, fees and promises to their LPs.