AngelList lowers the barriers to entry for emerging GPs to get started in Venture Capital. As a result, AngelList has expansive data on the performance of emerging managers. We wanted to use our funds data to answer two questions:
- Do the funds of first-time managers perform better or worse than experienced managers and
- Does the performance of a manager’s prior funds have any predictive value for their future funds?
Since the near-term IRR of funds can be unrealistically high, we restricted our analysis to only the 167 AngelList VC funds with an effective duration longer than one year. (This restriction means that Rolling Funds™ were excluded from our analysis, since they are a more recent product.)
First Time vs. Experienced Managers
We grouped funds by their order in a lead’s investment history: first funds, second funds, and third or later funds. The y axis is IRR per year net of fees for those funds.
These results suggest that a manager’s first and second fund don’t seem to be significantly different than a fund picked at random. Third or later funds appear to have higher performance, a phenomenon that we will revisit shortly.
The Persistence of Manager Performance
A manager’s Fund II has to come after their Fund I. That means (in general) for a given manager, we would expect their Fund II to have a higher IRR than their Fund I, because IRRs tend to fall over time. How can we align the performance of a GP’s Fund I and Fund II?
Fortunately, we’ve already built a tool that is designed to calculate values for venture funds of different recent vintages: our VC Fund Performance Calculator, which takes as input the net IRR and net TVPI of a venture fund and returns a 0 to 100 percentile of performance based on AngelList and external benchmarks. (You can find out more about our Fund Performance calculator from its introductory blog post.)
This plot shows the current performance of a GP’s first fund (x axis) with the current performance of GP’s second fund (y axis).
The (Spearman) correlation coefficient here is 0.12, which suggests essentially no relationship between the performance of a manager’s first and second fund.
The Exceptions that Prove the Rule
The table above seems to show that a manager’s third or later funds have better performance than their first two funds. But how could third and later funds have higher performance if the performance between funds is largely uncorrelated?
The answer, in part, appears to be due to the relatively high fund performance of two of AngelList’s most prolific managers: AngelList founder Naval Ravikant (7 total funds) and Mercury founder Immad Akhund (9 total funds). These two GPs are responsible for five of the six highest-performing funds in the third-or-later-fund bucket:
Going forward, both Naval and Immad have transitioned over to our new Rolling Funds product.