“There are many compelling reasons for the attractiveness of small funds. Indeed, the majority of funds larger than $250M (51% of funds) failed to even return investor capital after fees. Reviewing 850 venture funds from vintage years 1981 – 2003, SVB found that small funds with $250M or less in AUM significantly outperformed larger funds. Research from Silicon Valley Bank (SVB) mirrored Kauffman’s findings. A clear correlation was observed: as fund sizes increased, returns compressed. ( PDF: We Have Met the Enemy and He is Us). In 2012 it audited its performance and found that no single fund with more than $1BN in AUM exceeded a 2x cash-on-cash return after fees. Over a 20 year period the Kauffman Foundation invested in 95 venture capital funds. We call early-stage markets home where fewer funds have access to more opportunities and where investors have historically thrived. Let more investors compete for fewer opportunities in later-stage markets. And we’ve structured our marketplace, and our technology platform, from the ground up to exploit it. only 21% have less than $100M in assets under management-and these funds control less than 1% of available capital according to Preqin data. Of the population of active private equity funds in the U.S. An extraordinarily target-rich environment-that the lion’s share of funds size themselves out of. businesses with revenues greater than $1M have less than $10M in revenues. This creates for a fascinating paradox in the private markets: the preponderance of investment funds live at the upper end of the market while the preponderance of companies (investment opportunities) live at the lower end of the market.Ĩ6% of U.S. In the language of fees, bigger is unmistakably better. Why? Quite simply: traditional investment funds, be it private equity or venture capital, are perversely incentivized to grow assets under management to bolster fees. Even though later-stage markets are more efficient, more competitive and less alpha-friendly. Nonetheless, the overwhelming majority of investment funds intentionally scale out of the lower-end of the market and into its later stages. A wealth of empirical research underpins this belief, showing that, across asset classes, returns have historically been greatest at the lower-end of the market. Warren BuffettĪt CircleUp we believe early stage financial markets present outsized opportunities to investors. It’s a huge structural advantage not to have a lot of money.
The highest rates of return I’ve ever achieved were in the 1950s. Anyone who says that size does not hurt investment performance is selling.
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