Here’s a really simple spreadsheet modeling what a venture capital fund looks like. I made it because I couldn’t find something like it already on the web and thought it might be useful to others as a starting point.
Some huge caveats:
- This is not meant to predict returns. It’s best used by someone actively tweaking the model to understand how different variables interact with each other.
- This isn’t the right way to think about returns. Exits in this model are based on averages, but returns in venture are not based on averages.
- The model also doesn’t take into account that all else being equal, the more investments you make the more likely you are to invest in a big winner.
- It also makes other simplifying assumptions like assuming your fee stays constant over the length of the fund, assuming the maximum number of rounds before an exit is three, etc.
And yet, despite these caveats, I’ve still found it useful to think about how much of a fund to reserve for pro rata, the effect of dilution, size of a fund required to make meaningful carry, etc.
To use the model, make a copy and make your changes. See a mistakes or improvements you’d like to make? “Fork it” and share your spreadsheet back with me.
Thanks to Jeff Weinstein for significant contributions to an earlier iteration of this model. All mistakes are mine.
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