Yes, you can earn big money with venture capital (even when going through a couple of economical crisis)!

Louisa Mesnard
Mar 14, 2019 · 6 min read

Actual performance is very secretive in Venture Capital, and Private Equity, generally speaking. Some would say that it’s a confidential matter between a fund and its investors, others that the concept itself is void because when you compute it, most of the portfolios are unrealized and the hardest critics just say that Venture Funds keep their numbers in the dark because there is nothing to brag about!

We decided at Elaia, that when an institutional fund would come to an end, we would just openly share not only our performance but also some of the lessons we learnt while achieving it. And since our first institutional venture fund of 45 million euros is coming to an end, here goes!

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👉 A positive performance despite a launch in difficult times

2003, is the year Elaia launched its first fund. Here are its KPIs:

Note that the difference is normal: funds are not invested at 100% in the portfolio, and the cash we keep for uncalled follow-ons or use to pay fees, has a zero return. On top of this, if you crossed the hurdle rate, Carried Interest is taken out of the fund net performance when you see it through LP’s eyes, on the other hand.

To assess performance in finance, you usually compare to your peers and your time.

Let’s flashback: 2003 is just after the early 2000s recession that followed the bursting of the bubble and 9/11. Even in difficult times, we, at Elaia, already believed in the crucial impact that digital technologies would have on the economy and the value creation associated. But this wasn’t an easy journey since we experienced 2 major crisis during the fund life (2008 subprime and 2011 euro’s ones); according to the EIF, the 2003 vintage (year of creation of the fund) is the worst within the last 20 years in their portfolio, with 2% net IRR on average. (Note that we were not backed by EIF then so our fund and many others were not accounted for in the 2% average). We can fairly say then that reaching this performance was a success.

👉 Where did the portfolio performance come from?

Enough about us, let’s focus on our 19 portfolio companies and their individual performance:

The outcome is finally very close from the “Venture Capital Theorem” a US investor described us in the early days of Elaia: you must have at least one massive hit in your portfolio to get the expected performance.

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👉 Crossing a crisis impacts the performance and the timing of the fund

After being created post crisis, this investment fund also lived through the 2008 & 2011 crisis — when the entire fund was deployed and our companies were looking for new rounds or exits.

This 3 year long crisis period had various consequences:

👉 Investing early gives access to best performers

The fact that we invest in seed / pre-seed means we get a seat at the table early and can play in the next rounds. This is exactly what happened with our top performers. The only French funds that got to invest in Criteo were those present at the seed round. For Orchestra Networks, we are the only investment fund that followed until their acquisition.

We strongly believe the local investor must be present from the early stage on

It is unlikely that in the massive returners, a local investor can get a second chance to join in.

👉 Exits are a lot of work

Selling a company, even a great one, is far from being an easy journey. For example:

🔹 Criteo: After the IPO, it took us two years to sell stocks very gradually, in very small quantities so as not to offset the price and depending on the market situation. Thus, we increased by 50% the performance compared to the value of the IPO.

🔹 Orchestra Networks (reference data management software provider) It was the last investment in an on-premise solution (non SaaS). Although it was due to the positioning of the company (still limited appetitite of clients for a SaaS solution), it made the sale of the company more difficult as many potential buyers were only looking for SaaS acquisition. Learn more here.

🔹 Exaprotect (security management software for enterprises & service providers with large-scale & heterogeneous infrastructure) with two successive exits: the company was sold for the first time to the company Loglogic, itself privately held, and we received shares in payment. Loglogic was then sold in a cash acquisition, several years later.

🔹 Agnitio (worldwide market leader in Voice ID products): to get the full value of the company, we had to first sell the mobile tech assets to a partner and then the business to an industrial. Each sale represented roughly half of the total value we could get.

👉 Learn by doing

we focus on early stage B2B tech companies. That’s where we made money and that’s what we like to do.

👉 We will continue publishing our performance

This is a first but don’t worry, we will also share our performance and our key learnings on the next funds too. We can already tell you that thanks to our diversified management method, at equivalent date the 2012 vintage has achieved the same results in 6 years as our first fund in 10 years.

Subscription to funds managed by Elaia are reserved for professional investors. Past performance is no guarantee of future performance.

🙏 If you liked this article, feel free to clap, follow Elaia and share it! 🙏


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