To even call it an asset class is a stretch. For most of its history, it sat in an obscure corner of the market where a handful of craftsman investors rolled up their sleeves and ground away on moonshots that mostly didn't work. Fast forward and it’s now a mandated line item in every institutional portfolio. But just because the exposure has evolved doesn't mean the physics of the game has changed.
Commitment and patience still rule the day..
Day traders probably don’t enjoy fishing. Growing up, my father and I would take week-long fishing trips to Northern Canada. On the water, minutes turned into hours into days. The payoff was both the pursuit of the trophy and the benefits of the journey. Give up too early and you’ve forfeited both.
Venture is the same, only according to recent findings the trip lasts twenty years.
As an LP, the temptation is to time your entry based on the lure of the “big one” lore. But the data says that’s precisely how you lose. Relying on gut and momentum, clipping across the lake chasing the rumored hot spot, can work for the lucky. However, the professionals know the data paints a clear picture of a surgical and proven method to the madness.
My partner Hany Nada just published a piece on the "Vintage Year Effect." He looked at the numbers - 2,600 early-stage funds, $640B deployed since 1978. The takeaway forLPs is both blunt and enlightening:
Investing consistently in VC over any 20-year period yields a minimum realized net IRR of 20.6%.
But if you tried to be "smart" and only jumped in during the five-year boom cycles, that return could collapse to as low as 4.1%.
You don’t win this game by timing the market. You win by staying on the water. Consistent commitments across the troughs are the only way to make time work for you rather than against you. Manager selection matters, but it is often secondary to the simple discipline of staying in the boat, regardless of the conditions.
As predicted, Venture 4.0 is shrinking the asset class as the fair weather investors retreat. But the pros know it’s the turbulent waters that give them the lake to themselves.
Give it a read: https://www.acme.vc/news/the-vc-vintage-effect