Venture Capital: An Inefficient Market?
Unfortunately, returns in the venture industry today are extremely opaque and reporting methods are inconsistent. We as an industry seem to have lost sight of what ultimately matters: the amount of capital a GP invests, the amount he/she returns, and the time it takes to achieve an exit.
Returns data today reflect not only the capital that GPs return to their investors, but also unrealized portfolio gains. We think this is not a fair way to evaluate fund manager performance.
Current methods of valuing unrealized investments are variable enough to make side-by-side comparisons between different funds very difficult. Valuations can also be more reflective of temporary market fluctuations than what the underlying company is actually worth. No matter how much a company is “worth” at a given point in time, exits are never guaranteed and market conditions--along with valuations--may have shifted significantly by the time an exit is achieved.
This ambiguity creates significant market inefficiencies in the venture industry and impedes the effective deployment of capital.
At Sunesis, we seek truth through simplicity.
Venture is a long term game, and nothing speaks to the quality of a fund manager more than his/her cash returns over time. Furthermore, we believe that the most accurate data is that which is reported to us directly by GPs. Consequently, we’re crowdsourcing our data instead of using algorithms to estimate returns.
To balance the need to compare dealmakers’ performance with the need to keep the granular details of each person’s track record confidential, the data we receive will be used to calculate realized IRRs. We will then publish an annual list of the top performing GPs, ranked by realized IRRs and nothing else.
We’ve partnered with Dan Primack of Axios to help us reach as many people as possible, and are working with UNC’s Institute for Private Capital to certify the accuracy of our rankings.
We pull raw deal information from CrunchBase and can share your returns with them if you give us permission to do so.
Benefits to LPs, GPs, and Founders
Sunesis will enable LPs to deploy capital efficiently and effectively based on certified accurate returns data.
We will support meritocracy within the venture industry and provide recognition to talented investors at funds of all sizes and across all regions within the U.S..
Our rankings will also serve to guide founders toward VCs who can truly add value.
We’re excited to be working with you and hope that more transparency and an emphasis on realized returns will help the venture capital asset class provide better returns to investors.