      SaaStr · 2012-11-29
      · 4935d
    

Going Big in Venture Capital: Why Large VC Funds Can Absorb Massive Losses

Jason Lemkin argues that large venture capital funds like Sequoia can afford to lose tens of millions on individual failed investments because their successful exits generate returns that dwarf those losses. Using examples of Color ($41M loss) offset by Meraki ($240M gain) in 2012, and FTX ($150M loss) offset by $7.5B in fund gains, he illustrates why portfolio diversity and scale allow top-tier VCs to 'go big' with high-risk bets.

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Metrics in this report

Color Pre-Launch Capital Raised

41$M

total

iOS app with zero revenue before shutdown

FTX Loss as Fund Percentage

2%

of committed capital

Sequoia's FTX loss relative to full fund

Sequoia Estimated Color Loss

14$M

estimated at 70% of $20M spent

Failed iOS app investment

Sequoia Estimated Meraki Gain

240$M

estimated based on 20% ownership

Sequoia Capital return on Meraki

Sequoia FTX Loss

150$M

total loss

Failed cryptocurrency exchange investment

Sequoia Fund Gains Offsetting FTX

7500$M

net gains in same fund

Portfolio returns exceeding FTX loss

Sequoia Fund Return Multiple

3x

minimum

Fund return after major losses

Sequoia Meraki Exit Value

1200$M

acquisition price

Enterprise WiFi company exit 2012