Urvaksh broke the news about Valor Ventures last week with his article New Atlanta VC Fund Will Invest in Women’s Companies. I’m an investor in the fund and excited about helping female founders build large companies. Thinking about a $20 million venture fund, here’s a common investment strategy:
- Allocate 40% of the fund ($8 million) for new investments and reserve 60% for follow-on investments
- Invest an average of $1 million per company with a target ownership of 20% (results in an average post-money valuation of $5 million) and eight total investments
- After dilution in subsequent rounds, and participating pro rata in the “winners”, own an average of 10% across the eight investments
- To achieve a 17% IRR (needed to be top quartile), the fund needs to return 3x cash on cash, which is ~$70 million of cash (inclusive of management fees)
- Owning an average of 10% of eight companies means the portfolio of investments needs to have an aggregate exit value of $700 million
The venture model is predicated on finding startups that have the opportunity to become large, meaningful companies. Picking great entrepreneurs in great markets is the key to any successful fund.
What else? What are some other thoughts on the common investment strategy for a $20 million fund?