Inside Collaborative Fund’s 4x DPI Fund I

The author discusses the importance of understanding venture returns metrics, particularly for early-stage funds, and how they evolve over time. To illustrate this, they share data from Collaborative's first fund, a 2011 vintage that is now nearly fully realized. The fund had a small size of $8M deployed across 50 investments, with check sizes ranging from $10K to $400K. The fund's performance metrics show a strong overall performance, with a 4.1x net DPI, which is solidly top-decile. The fund's returns were highly concentrated, with eight companies driving nearly all distributions, and one company alone contributing 73% of all cash returned. The author notes that the power law is at work, where a small number of companies drive the bulk of returns, and that capital efficiency is key, as less than $1M invested in the top eight companies generated $37.6M in returns. The author also highlights that check size does not necessarily correlate with upside, and that winner variance is high, with multiples ranging from 1.4x to 115x. The post serves as a reminder to take venture performance narratives based on unrealized funds with a grain of salt, as many trends may fade or reverse as funds mature. The author concludes that the biggest risk in early-stage VC is missing or mis-sizing the outlier, and that a small number of companies can drive the bulk of returns.