Mar 19, 2020
 in 
Venture Capital

White Paper: Venture Capital The Asset Class — A Review of Risk, Returns, and the Future of VC Allocations

Author
GoingVC Team

Introduction

With the proliferation of technology-based startups in the last 10+ years and the intervention of the term ‘unicorn’ in everyday tech-talk, it is not unfair to say that startups are eating the world. Recent innovations in historically tech-lagging industries such as Health Care, Financial Services, and Education have created vast amounts of opportunities for the venture capital industry. According to Invesco, the top quartile of venture capital funds have outperformed other asset classes in each of the trailing 5, 10, 15, 20, and 25 year periods. Given the strong historical performance of venture capital (and the obvious use of technology in our daily lives), why does it remain an opaque industry and one that sees relatively smaller allocations within institutional portfolios? For GPs themselves who are currently raising funds or considering the prospect of launching a VC firm, it is important to understand the dynamics of venture capital as an asset class, especially given the outsized returns that have been realized by investors and the continued ascent of mega-funds, frothy private market valuations, and compelling macro trends.

General Partners of VC funds, whether they realize it or not, are not only competing for capital against other VC funds, but with other asset classes such as equities, fixed income, real estate, and hedge funds, among others. Therefore, having an understanding of venture capital as an asset class and how it fits into institutional portfolios is just as critical as daily fund and portfolio management. The same can be said for those seeking careers in the industry — how might fund sizes, stage focus, and the current environment shape a potential career in the Venture Capital industry?

What’s included in this research paper:

  • An introduction to the Venture Capital asset class
  • How and why LP’s allocate to VC and historical performance
  • Why early stage and and small fund sizes outperform
  • Why risk limits allocations to VC within institutional portfolios
  • What it all means for VC going forward

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