Understanding the Number of Invested Startups for a Small VC Fund
In the world of venture capital (VC), a key question for both aspiring startup founders and seasoned venture capitalists revolves around how many startups a small VC fund can realistically invest in over its lifetime. Several factors come into play, including the size of the fund, the investment stage focus, and the desired pacing of investments.
Factors Influencing the Number of Startups Invested
The capacity of a venture capital fund to invest in startups is significantly influenced by its total size and budget constraints. For example, a small VC fund with a $120 million fund might plan to invest this over a five-year period, targeting seed-stage through Series B rounds. If they decide to allocate approximately $5 million per company over two rounds, this strategy would allow them to invest in 20 companies with some additional dry powder leftover. However, the number of startups a VC fund can invest in also varies based on the overall strategy and the number of partners involved.
Capacity Analysis of VC Funds
For bigger funds, a typical model sees each partner making an average of 1 to 2 investments per year. Given a team of four partners, this equates to around 18 to 20 core investments over the entire fund's lifespan. Smaller funds, eager for higher velocity, might aim for 3 to 4 investments per year per partner, which, with fewer partners, could lead to around 15 to 20 core investments.
Modeling Startup Investments
Based on a detailed analysis, one model suggests a fund such as VC XYZ with a $120 million fund could make 10 larger investments and 5 smaller ones, totaling 15 investments. However, the specific number can vary widely depending on the fund's strategy, total fund size, and partner dynamics.
Conclusion
The number of startups a small VC fund can invest in is not a one-size-fits-all answer. It depends on a myriad of factors, including the fund's size, the investment stage focus, and the desired investment velocity. By carefully considering these factors, VC funds can optimize their investment capacity to maximize their impact and success in the startup ecosystem.