Founder Friendly Fund Simulator II

What returns might a founder friendly venture capital fund generate compared to the market of other venture capital firms?

Written by Eisaiah Engel on April 15, 2019.

The purpose of this tool is to combine the simulation of the investment hypothesis proposed in Grays Sports Almanac for Venture Capital and compare it to the long-term returns of the venture capital industry using underlying data from venture capital and private equity database, Pitchbook.

Tab: Simulation

Section: Each Roll of the Dice

Starting amount

It’s assumed the funds all start with 200K.

Length of Each Investment

Length of investment is how many years a fund remains invested in companies. We calculate 15 years because that’s the investment hypothesis in Grays Sports Almanac for Venture Capital.

Number of Fund Reinvestments

This is how many times principal and gains are reinvested. A 15-year fund that’s reinvested across 4 cycles lasts for 60 years.

For each cycle, a percentile is randomly chosen from the PercentileInput sheet. The same percentile applies across all three funds.

Example: If the 50th percentile is randomly chosen, the simulation tool chooses the following IRR values for each fund:

Percentile of funds IRR (%) of Regular LP’s share IRR (%) 20 investments with 2K Sidecar LP IRR (%) 40 investments with 4K Sidecar LP
50% 0.7% 2.4% 3.0%

Section: Parallel Rolls of the Dice

No of Parallel Rolls of the Dice

500 means that we’re simulating Each Roll of the Dice (section above) 500 times.

Chart Metric

You can show IRR or the dollar values.

Filters

  • Simulated %iles will filter the accompanying table and graphs by how many events in the bottom and upper 10th or 20th percentiles for the 2k and 4K simulations. The default is set to 0 which means no filter is applied.
  • Percentile filter on Regular LP Returns will filter the accompanying table and graphs by how many rolls of the dice cause the Regular LP returns to fall within a percentile you input. The default is set to 0 and 100, which means no filter is applied as all percentiles are being selected.

Mean, Median, Standard Deviation, Maximum and Minimum are all values of the simulations from the parallel rolls of the device based on the filters.

Tab: PercentileInput

Percentile of Funds

This is a table showing percentiles between 0 and 100%. For each percentile, you’ll see the IRR of three funds:

  • IRR (%) of Regular LP’s share
  • IRR (%) 20 investments with 2K Sidecar LP
  • IRR (%) 40 investments with 4K Sidecar LP

IRR (%) of Regular LP’s share

This is a view of all of the IRR delivered by the venture capital industry minus fees. The graphs below show it’s calculated.

IRR (%) 20 investments with 2K Sidecar LP

Founder Friendly Fund Simulator was used to simulate 110 funds pooling making 20 uniform investments each (total of 2,200) in the following cities with the highest odds of creating high-growth companies.

  • Washington DC: 1 in 326
  • Austin: 1 in 420
  • Atlanta: 1 in 523
  • Columbus: 1 in 631
  • Nashville: 1 in 645

The funds are meant to be passive, index funds. They are assumed to invest in the companies that would be funded in the above cities by regular VCs and angels, except the companies are presumed to be on the Founder Friendly Standard and are not experiencing intervention by investors on the board.

* Company valuations are capped in the Founder Friendly Fund Simulator, which explains why Regular LP’s share in traditional VC are be higher in the top percentiles.

IRR (%) 40 investments with 4K Sidecar LP

Founder Friendly Fund Simulator was used to simulate 110 funds pooling making 40 uniform investments each (total of 4,400) in the following cities with the highest odds of creating high-growth companies.

  • Washington DC: 1 in 326
  • Austin: 1 in 420
  • Atlanta: 1 in 523
  • Columbus: 1 in 631
  • Nashville: 1 in 645

The funds are meant to be passive, index funds. They are assumed to invest in the companies that would be funded in the above cities by regular VCs and angels, except the companies are presumed to be on the Founder Friendly Standard and are not experiencing intervention by investors on the board.

* Company valuations are capped in the Founder Friendly Fund Simulator, which explains why Regular LP’s share in traditional VC are be higher in the top percentiles.