- The best way to measure the performance of a venture fund is its cash returns. The problem, however, is that cash returns can take years to appear if they appear at all.
- In order to track the performance of a venture fund before it matures, the vast majority of funds are required to estimate the current value of their portfolio on a quarterly basis.
- As a general rule of thumb, the value of a portfolio company is either marked-down to $0 if they’ve failed or marked-up to the value of their most recent fundraising. In between those two cases (failure vs. future funding), there’s an especially wide gray area.
That gray area can result in somewhat-sensational tweets. If you’re putting an estimated value to portfolios and releasing that information to the general public, there ought to be a responsibility to include the methods used to value the underlying portfolio. Otherwise, you risk ending up with sensational headlines that aren’t exactly a lie but aren’t exactly the truth.