Investment returns in venture capital as an asset class have not been good for a long time. To me, that result is somewhat predictable. Great investment returns are not going to come from anything where you have to swing for the fences with every investment (or should I say gamble) and expect to lose money on a lot of the investments.
Great investors know that the first rule of good investment returns is to not lose money on any investment, if you can. It just takes too much good fortune on the rest of the portfolio to make up for the losses. An investment philosophy that does not swing for the fences each time but instead hits steady singles, doubles, and triples should outperform every time.
20%+ Investment Returns for Greybull Stewardship
The early returns from my investment fund, Greybull Stewardship, have been very good — averaging over 20% net of fees. We are focused on the marriage of companies and existing management that already have a good track record of financial results. We make sure the management has plenty of equity to get us all aligned and let management run the company, helping when we can. And, the most difficult of all, we do not try and change the company (culture, strategy, growth rate, etc.) and risk disrupting the company’s track record of success. We can do this because we do not have to prepare the company for sale in another 3-5 years and we can treat the company as if it is our family’s only asset to be treasured and grown with care.
Our strategy takes several risks out of the venture capital equation. First, the businesses are already proven so we aren’t gambling on a new product or “product market fit”. Second, we are not gambling on management because the management already has a good track record in managing the business. Third, we are not gambling on a new strategy to attempt to sell the company in 3-5 years.
My goal is to make Greybull Stewardship the perfect home for unique, well-managed businesses where the management wants to keep going and own a lot of equity (either minority or majority stake is fine for me). There are not many places for owners to find this — strategic buyers will change everything and traditional private equity will only be focused on a sale in 3-5 years. And, I want to earn good returns for my investors in exchange. So far, so good.
NOTE: I know that venture firms in the top quartile or top decile outperform the class and do very well, so it may be unfair to compare Greybull Stewardship to the entire asset class of venture capital.
Cambridge Associates provided this data as of September 30, 2012.
- Your Are What You Eat (In Business, Where You Get Your Investment) [November 26, 2012 - masonmyers.com]
- Honey, I shrunk the definition of long-term investing [September 25, 2012 - masonmyers.com]
- Strategy Follows Structure — John Bogle on Invesetment Funds [August 17, 2012 - masonmyers.com]
- Venture Capital Returns by Fred Wilson at AVC, February 21, 2013