Investing early in a business can offer big rewards, well exemplified by the renowned ‘Unicorn’ companies, with their private valuations of $1bn plus. However, given the relatively high level of risk of investing in start-ups, trying to decipher which company would be a good long-term investment is challenging. The role the fund manager plays in achieving successful returns is significant and for many LPs, considering a GP’s past performance is an important aspect of the due diligence process. Past performance, however, is no indication of a manager’s future performance because markets evolve quickly and new trends easily take shape. Preqin’s Top Performing GPs tool can offer investors a solution to assessing a fund manager’s ability by instead identifying which firms have shown the most consistent fund performance in terms of top-quartile rankings.
Preqin’s Performance Analyst online service holds net-to-LP performance data for over 7,500 funds, of which 1,755 are venture capital funds*. To determine the most consistent performers, Preqin only considers active GPs that have raised at least one venture capital fund in the past six years. The data is further restricted to only analyze GPs with more than three venture capital funds and excludes funds with vintages 2012-2014. These fund managers are allocated a score of one for a top-quartile fund, a score of two for a second-quartile fund and so forth.
As shown in the table above, there are eight venture capital firms on Preqin’s database that have an average quartile rank of 1.00, a perfect track record of consistent top performance. Among these is Benchmark Capital, a California-based firm, which has raised an aggregate $1.8bn in the past decade and invests across the venture spectrum. On par with Benchmark Capital is Sequoia Capital, which similarly has raised three funds that have all achieved top quartile status, but has accumulated six times the amount of Benchmark over the last 10 years.
The majority of these top 10 venture capital firms are based in the US, with the only exception being Israel-based life sciences investment firm, Pontifax. The Herzliya-headquartered GP has closed three early stage-focused vehicles that have all fallen in the first quartile and is currently in market with a growth equity fund targeting $200mn.
It is interesting to note the differences between this table of 10 most consistent performers in venture capital and the rankings of the ‘10 Largest Venture Capital Fund Managers’ (by Total Funds Raised in the Last 10 Years) in the June issue of Preqin’s Private Equity Spotlight newsletter. It gives some indication that those firms raising the most capital for venture capital investment are not necessarily the strongest performers in the industry.
*Includes the following fund types: Venture Capital (general), Early Stage, Early Stage: Seed, Early Stage: Start-up and Expansion/Late Stage.