![]() Kevin Harvey, of Benchmark here in Menlo Park, Calif., said the intent from the beginning was that Benchmark Europe would have local autonomy, and it has been run that way. Indeed, DFJ saw serious defections in China two years ago.īenchmark U.S., which has always had an equal partner structure internally, compared to most firms where there is significant hierarchy. DFJ, Kleiner Perkins, Sequoia Capital and others have all expanded internationally - and will have to deal with the same challenge of managing relationships with their foreign counterparts. The move is also notable because it shows how the venture model continues to tend toward local manager control. MySQL, another investment, plans also to go public soon. Benchmark Europe raised a $500 million fund in December, is one of the largest VC firms on the continent and is starting to see its first returns: One of its investments, Yingli Solar, filed to go public yesterday on the NYSE. firm has become successful enough to do business under its own name. This is why we employ a strict IRR benchmark, and we're lucky to be in a position to employ a premium IRR benchmark as compared to most other VC funds.The move is significant because it shows the European outpost of the U.S. So, what’s the moral of the story? When it comes to venture investing, there can be much more to expected returns than multiples alone. Such opportunities are rare, and our high IRR threshold obviates out the vast majority of later stage opportunities, but they do exist. This impacts our IRR equation, and allows us to look at later stage investment opportunities as long as we can be reasonably certain that a sucessful near-term exit is likely. In theory, these investments should have lower loss rates and shorter holding periods. They are also seen as less risky because the odds of a successful exit are higher. Among other things, more mature entities are typically generating significant revenue (though they may still be unprofitable) and have moved beyond the market and product development stages. Later-stage opportunities typically involve less risk. We also take risk and necessity of follow-on capital into account. We're use this benchmark because 1.) it forces us to be patient- our dealflow is strong and if an investment doesn't trip our IRR threshhold, there will be another opportunity around the corner that will, and 2.) we're located in an area of the country in which valuations on early stage tech/life-science startups are priced at an approximate 50% discount to valuations in Silicon Valley. Brightstone differs in a few meaningful ways- first, our IRR threshold is 20% higher than a typical venture investors. I suspect this is why many early stage tech/life-science investors focus on the 10x benchmark. This means an early-stage investor would need to garner 10x plus multiples on the winners to meet his or her IRR target. Our experience suggests that most venture investors seek a 30% IRR on their successful investments according to the National Venture Capital Association, the average holding period of a VC investment is eight years. ![]() There are two key factors driving our IRR assumptions- ultimate return multiple on invested capital and the holding period of the investment. At Brightstone, we employ a strict 50% internal rate of return (IRR) benchmark for any given portfolio investment. ![]()
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