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Loss Ratios In Early Stage VC - AVC

avc.com · 151 words · saved by 1 readers

When I was early in my career, I casually mentioned to an older VC that I had yet to lose money on an investment. He replied "that's not good, you aren't taking enough risk." I have gone on to lose a lot of money over the years. And made a fair bit too. So one of the things I like to look at when I look at our funds and other VC funds that I am an investor in are loss ratios. You can calculate loss ratios by "names" meaning how many investments ended up being worth zero. Or you can calculate loss ratios by "dollars" meaning how much of the capital invested in the fund went into total losses. Ideally your names loss ratio will be a lot higher than your dollars loss ratio. Our first fund, USV 2004, has an "names" loss ratio of about 40%. That means 40% of the investments we made are going to be end up being worthless or near worthless. That fund will be the best venture fund I have ever worked on. So loss ratios are not really indicative of performance of a fund. That comes from the winn

Man, does this post hit home. I used to say if I batted over .300 on trading, I’d be in the Traders Hall of Fame. I think VC is the same. I journal all of my investments. Some die because I thought they were bang up ideas that weren’t; or the startup was unable to raise enough capital to get going; or poor execution; or events beyond your control (2008 for example).The key metric for me is the way I make decisions. The hardest ones are the next rounds. Do I re-invest or not? Why and why not? One of the smartest decisions I ever made was not re-investing when the crowd did. Another

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