The first in a two part blog post Fred describes how return’s are calculated and highlights that the money flows into and out of a fund over time rather than $x at the beginning of the ten year period with $y out at the end.
In this post Fred does an excellent job of explaining why a fund has to make more than $2 return on a $1 investment to return more than 2x to it’s investors.
Fred highlights the importance of big winners in making the necessary returns to investors (2.5x to 3x) and the uncertainty in figure out which ones in the portfolio will achieve that return. Out of 6 or 7 investments he hops that one or two can achieve those break out returns, but isn’t sure which one will.
With this post, Fred highlights stages and batting averages. For his funds, they expect to lose 1/3 of their investments completely, break even on 1/3, and that 1/3 will be big hits.
This is a great post outlining the problem’s venture capital is facing in aggregate with too much money chasing the category causing overall returns to shrink. While this issue has been discussed elsewhere, no one does a better job exposing the numbers that make this an issue.