Venture Capitalists often use multiples, such as 10x capital invested, to tout performance. CB Insights, Forbes, Mattermark, Preqin and Boston Illiquid Securities Offering Network (BISON) each list top fund managers.
Below, you’ll find rankings and details of factors for each.
CB Insights partnered with the New York Times and published a list of what they collectively believe to be the top Venture Capital partners. They leveraged the investor Mosaic tool (explained in the Angel section in part 1).
Mattermark does a breakdown of each stage and provides live data and rank for free. It leverages a model that weights momentum average growth scores of its active portfolio companies, web traffic, mobile downloads, inbound links, employees and social media. It creates synthetic portfolios for investment firms to see which firm had the strongest portfolio.
Top 10 from the Seed/Angel group
Forbes Midas list of 2016 is a partnership between Forbes and TrueBridge Capital Partners. The list is based on data collected from publicly available sources, and direct submissions from the firms themselves. Midas provides a five-year look-back at a partner’s portfolio, with exits by IPO or acquisition of $200 million or more and private holdings that raised money at valuations of $400 million or more over that time period. This includes a discount for the unrealized return. Midas’ formula favors earlier, bigger bets that return high multiples on an investor’s initial money, though a string of later successes can still make a Midas portfolio.
Sequoia was the big winner with three in the top 10. The top 10 of the list invested in an average of eight companies valued at $1 billion or more.
Preqin offers a report with the top firms each year. The performing ranking takes into account multiple vehicles within a fund series. Preqin only assigns quartile rankings to funds that have a vintage over three years old – as more recent fund performance tends to be less meaningful.
Furthermore, the tables are restricted to active fund managers that raised a fund in the past six years or are currently raising a fund of a similar strategy and previously raised at least three funds of a similar strategy.
In order to identify the fund managers that are most consistent, an average quartile ranking is calculated and assigned to each fund manager, funds are then given a score based on their quartile ranking. Top quartile funds receive a score of 1.00 and second quartile funds are given a score of 2.00 etc., and then an average is taken, which is used to calculate the tables.
The 2015 list (pdf) is public. Preqin provided the latest list of top Consistent Performers as of July 2016 for this report.
Boston Illiquid Securities Offering Network (BISON) offers a listing based upon what it states is actual performance data.
Private Equity (PE) firms typically use Internal Rate of Return (IRR) for performance measures. Private Equity firms typically have larger funds, Preqin’s 2016 report states a $578 million average. The National Venture Capital Association (NVCA) reports a $118.6 million average fund size for Venture Capital. Private Equity firms often utilize debt, often being highly leveraged. Timing of cash flows may be even longer between money in and money out compared to venture capital.
When an individual or institution commits to a PE fund the money gets invested over time sometimes 10 to 15 years, which places more weight on the earlier cash flows.
For 2015, Preqin lists the top firms based on number of deals and aggregate deal value in its blog and publishes a yearly report on consistent performance
Number of Deals
Aggregate Deal Value
Silver Lake and MSD were both part of Dell’s EMC acquisition
While the lists above contain familiar names that get a lot of media coverage they do not reflect Preqin’s measure on performance. The Consistent Performance Report breaks out top Private Equity firms into categories like buyout, mezzanine, real estate, infrastructure and natural resources. None of the firms that was on top for deals and value made any of these categories. The following are the top 10 (pdf) of the Buyout Category.
According to Barron’s Penta, total industry assets under management rose to nearly $2.9 trillion in 2015. Hedge Fund Research reported that 979 funds shut down last year, due to investor impatience with poor returns and high fees.
Also see: What is a Hedge Fund?
Barron’s Penta leveraged three major hedge fund databases, BarclayHedge, Morningstar and eVestment, which allows it to collectively sort through thousands of funds that meet its basic requirements of at least $300 million in assets and a three-year track record as of Dec. 31, 2015. It leverages industry contacts and other sources it deems reliable to report on firms that don’t file with the databases or that it speaks directly to. Each firm is contacted to confirm the accuracy of the data and to gather information about its strategy. The algorithm ranks by annualized three-year compound performance.
Top 5 with Equity Long Bias or Only
Barron’s screens out narrow industries and small regions, funds that invest in only one sector, such as commodity-focused funds, gold or energy. Diversified commodity trading advisors (diversified managed futures) are considered. It also screens funds that focus on one country, like China-centric, but will include regional like Asian-Pacific.
Bloomberg only looks at one-year performance
Zero Hedge one-year performance
Perceptive Life Science
Solutions like CB Insights, Mattermark, Preqin and Bison can help investors lower costs, provide transparency and empower co-investment.
These firms built tools to help investors select top managers, avoiding selection bias. Understanding their selection methods, algorithms and lists can help you when developing your own investment strategy.
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Michele has been a director with Financial Poise since 2012. View her LinkedIn profile here: https://www.linkedin.com/in/michele-schechter-46b9824a/
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