Calculate your Venture Arrogance Score
What percentage of global venture capital exit dollars do you need to own to make your fund math work?
First Round Capital’s Josh Kopelman calls this the “Venture Arrogance Score” which he introduced in a recent interview with Jack Altman here.
We thought it might be fun to create a calculator here where you can plug in your own assumptions to calculate your own Venture Arrogance Score.
Figure 1. SignalRank’s Venture Arrogance Score calculator (here)
Kopelman’s logic
Kopelman’s logic is as follows:
Fund size / target ownership at exit = implied gross value of your portfolio today (“Portfolio Today”)
Target gross TVPI * Portfolio Today = implied gross value of your portfolio at exit (“Portfolio At Exit”)
Portfolio At Exit / fund fundraising cadence in years = Expected annual exit
Expected annual exit / aggregate value of all VC exits per year = Arrogance score
Let’s plug in some real numbers. To use Kopelman’s example:
$7bn fund size / 10% ownership a exit = $70bn implied value of portfolio today
4.0x TVPI * $70bn value of portfolio today = $280bn of gross value at exit
$280bn of gross value at exit / 3 years fundraising = $93bn gross value at exit per year
$93bn annual exit / $180bn all VC exits per year = 52% of value from all VC exits per year derive from your fund (aka your arrogance score)
A16Z’s rumored fund in context
A16Z is rumored to be raising a $20bn fund. Using Kopelman’s assumptions, the math doesn’t math; it implies A16Z would need ~150% of value from all exits globally.
So what would you have to believe for a $20bn fund to deliver market share of say ~20% annual exits?
It is some combination (and probably all) of the following:
Liquidity improves: current exit volume is <10% of VC NAV. You would have to assume that liquidity improves with some combination of higher IPOs, M&A and a more meaningful role for secondaries.
AI creates larger outcomes: OpenAI is already valued at roughly a third of a trillion. Individual companies could deliver outcomes that are an order of magnitude higher than from previous tech cycles.
Lower target returns: moving below 4.0x target gross MOIC could be a reasonable assumption given the scale here.
Higher ownership: you could reasonably assume higher ownership than 10% (even if overall ownership trends are down, a $20bn fund should have some buying power).
Slower cadence: it is probably not reasonable to assume that you’re going to raise $20bn every three years…
In sum, Kopelman’s framing perfectly encapsulates the how venture model is changing. The large fund sizes of branded funds are challenging previous assumptions and will create ripple effects throughout the ecosystem.
Here is the link to our calculator again.
Great stuff! Keep it up!