Which Venture Capital Model Should I Use?
I offer a range of models for venture capital funds. All share the same stucture for reporting cash flows and fund performance metrics, but have a couple key differences, outlined below.
Fund Assumptions
Overall fund assumptions - fund size, management fees, carried interest, recyling, and expenses - are similar across all the venture capital models.
The structure specific to this model - detailed above - is replicated across all of the venture capital models, with the note that the Venture Investor Model and Venture Investor Model with Actuals Tracking offer additional assumptions for a preferred return, GP catchup, and tiered carried interest.
Portfolio Construction
Portfolio construction is the process of creating your portfolio strategy, check sizes, follow on reserves, and expectations around valuations, ownership, and dilution over time. In fund models, portfolio construction drives the logic used to budget for the deployment of capital (e.g. new, follow) and forecast proceeds from investments, both in terms of timing and how much. One of the primary differentiation between the different venture capital models is how the logic for portfolio construction works, and it essentially ranges from simple to more complicated, detailed at Portfolio Construction.
This model layers onto the average investment approach a more detailed portfolio construction approach that models follow-ons, increases in valuations, graduation rates, dilution, and proceeds per type of exit. This creates the rationale for how a fund returns a gross exit multiple, demonstrating the underlying logic behind stage entry points, ownership, and dilution.
Background on portfolio construction and how to choose which is best for you at How to Model a Venture Capital Fund
The average cap table approach to portfolio construction in this model is detailed below.
For tracking a portfolio, the Venture Capital Model, Manual Input offers an easy way for investors to track a portfolio as wel as forecast future investments and proceeds.
Scenario Analysis
All of the models can be used for scenario analysis, and for context here are a few ways to do scenario analysis in financial models. This model has a prebuilt structure to create three different scenarios, simply unhide the additional scenario sheets to modify the scenarios and see the comparison. Details in the video below.
Timescale
The paid models, the Venture Investor Model and Venture Investor Model with Actuals Tracking create quarterly forecasts that are summed into annual forecasts, all free models create annual forecasts, except for the Overall Forecast variants, which do not forecast cash flows over time (only totals).
Financial Statements
Financial statements - statement of operations (e.g. income statement), statement of financial condition (e.g. balance sheet), and statement of cash flows are only prebuilt in the paid models, the Venture Investor Model and Venture Investor Model with Actuals Tracking.
Preferred Return and GP Carry
Preferred return (hurdle rate) and GP carry are only prebuilt in the paid models, the Venture Investor Model and Venture Investor Model with Actuals Tracking.
Management Company
The paid models - Venture Investor Model, Venture Investor Model with Actuals Tracking, and Venture Capital Model, Average Cap Table - include an additional sheet used to budget the expenses of the management company running the fund. More details at Budgeting the Management Company of a Venture Capital Fund.
Background on those terms at How to Model a Venture Capital Fund
