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The Benefits of Investing Early
Investing earlier in a company's lifecycle, on average, yields higher investment returns. One way to illustrate the relative returns from earlier, mid and later stage equity investing is to study venture capital fund returns.
Thomson Venture Economics and the National Venture Capital Association analyze returns from 1750 US venture capital funds of all types. Their data shows that, as of March 31, 2008, early-stage and seed venture capital investments produced the highest returns over the past 10 and 20 year periods.
The table below also segments the returns from different types of venture capital funds into the standard categories of later stage, balanced and early-stage / seed venture funds. This clearly shows how much higher the returns have been over the medium and long term in early-stage and seed funds.
Early-Stage Investing Yields the Highest Long-Term Returns (avg % per year) |
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Fund Type |
1 Yr |
3 Yr |
5 Yr |
10 Yr |
20 Yr |
Early Seed/VC |
10.6 |
4.9 |
4.8 |
34.0 |
21.2 |
Balanced VC |
8.8 |
13.1 |
12.7 |
14.8 |
14.6 |
Later Stage VC |
30.4 |
13.1 |
11.1 |
8.6 |
14.4 |
All Venture |
13.3 |
9.5 |
9.1 |
17.2 |
16.8 |
Thomson Reuters' US Private Equity Performance Index (PEPI)
Investment Horizon Performance through 3/31/2008
We believe there are several reasons why early-stage and seed capital investments have provided the highest, long-term investment returns. Early-stage companies are more entrepreneurial and more agile. They often outperform their larger competitors by responding more quickly to changing market conditions and by more rapidly deploying new technologies. Their relatively smaller size also allows them to grow faster on a percentage basis than larger organizations. This corresponds directly to higher investment returns.
While the returns have traditionally been higher with early-stage investments, the quid pro quo is that these investments are also more risky. Investors are cautioned that, while Fundamental Technologies II will use all of our team's skill, knowledge and efforts to make our investee companies a success, and thus provide superior returns to our investors, there is no guarantee that any or all of our investments will be a success, or that our company will provide a superior return.
Cautionary Note on This Data
This data is the most widely used to show the relative performance of venture capital investments at different stages of a company's life cycle. We caution that this data is not accurate. This article has more information about on our opinion on this information. We continue to show this here just to illustrate the relative returns at different investment stages, not as any indication of absolute venture capital returns.