A post by my partner Sanjay that was originally submitted to Siliconindia. You can find it here.
To understand Venture Capital today, we need to first look back at the past performance of this investment class. Historically Venture Capital returns have been on average 800 basis points better than the stock market. In other words when the NASDAQ, DJIA or S&P 500 were delivering 12 percent to 15 percent returns then the Venture Capital industry in aggregate was delivering 20 percent to 30 percent. Now those were average returns for the whole asset class with some funds delivering returns as high as 80 percent IRR’s and correspondingly there others with returns that were lower than the average or even negative. On the whole, however, returns in Venture Capital were better than what you would have received by investing in bonds or stocks and the venture capital industry therefore attracted more capital and more managers.