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!

Photo by from Pexels

👉 A positive performance despite a launch in difficult times

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

  • a return of 4.5x cash on cash (gross) & an IRR of 22.9%
  • a net return of 3.3x cash on cash & an IRR of 14.7%, for the investors.

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.

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:

  • Top performers (over 10 times the total investment back): 2 companies stand out as top performers, Criteo that IPOed in 2014 and Orchestra Networks which was acquired late last year by TIBCO.
  • Performers (twice to 10 times the total investment back): 4 other companies from this portfolio are considered as “Performers”.
  • Others: 9 other companies have been divested with a small positive or negative return on the total investment and only 4 have been fully written-off.

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.


👉 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:

  • tough times (obviously) but the most tech companies of our portfolio are those that were better off during the crisis. The execution plays or “nice to have” product sellers did suffer much more.
  • 3 out of the 9 potential performers we had in mind back then, had over 10M euros income but were still needing strong capital injections, which were increased due to the crisis. These mid-size companies ended with an overall negative performance. Whereas, we believe, they would have been part of the performers in normal times (which means that 50% of our portfolio companies would have been performers).
  • delayed exits of 2 to 3 years which means the fund was mostly returned in 13 years and totally in 15 years instead of the expected timing of 10 to 12 years. The impact is that the IRR is less attractive than the multiple of the fund.
  • The most affected companies by the crisis were the most developed but still in their early days, because they are the ones who had the highest turnover and had to drastically cut their workforce. On the contrary, the early stage part of this investment fund faced pretty well the economic crisis because the companies were still at the R&D stage and little sensitive to a decrease of turnover. Having always very early companies in your portfolio can be a limiting factor of risk.
  • Our best investment, 🥇 Criteo 🥇, thrived during the crisis, because its retargeting was just perfect for struggling e-merchants. Having countercyclical companies is great too.
  • Another performer, 🏆 Agnitio 🏆, was selling to governments a tech crucial in law enforcement and especially in anti-terrorism. Crisis didn’t affect them so a strong diversification must be an objective of any fund.
  • In spite of the crisis, only 4 companies were full write-offs. Let’s admit it: this low rate is essentially due to our focus on tech companies and mainly B2B — which you can almost always sell and thanks to preferential liquidation, you recover all or part of the amount invested.

👉 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.

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

  • These key learnings on our first fund have strengthened our investment thesis:
  • Picking and sourcing is key but the fund allocation within the portfolio is too: most of the money should go to the performers and over performers. We have applied this “easy to say but hard to do” rule since our 2012 fund were achieved that 80% of the fund is allocated to the portfolio performers and over performers — which represent half of our portfolio.

👉 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! 🙏


• Backing tech disrupters •

Louisa Mesnard

Written by

Head of Marketing & Communication at @elaia • @StartHer • Globe Trotter @_WProject_ •@TextFugees • Teacher @ESSCA_Ecole



• Backing tech disrupters •

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