Fund Returns

The large majority of VC funds depend on at least one "home-run" exit per fund, i.e., a portfolio investment that returns at least 15 times its original investment.  This strategy results in high risk for the fund’s investors, since a failure to achieve at least one exit at an astronomic valuation will cause the fund to suffer from low returns.  (More than any other factor, this explains why “venture capital” as an asset class has been disappointing in recent years, the records of a small handful of very successful firms notwithstanding.)  This “need-a-home-run” strategy also involves lower predictability and a longer wait for returns, as on average (a) it will take longer to develop the companies; and (b) little information regarding their exit can be known at the outset, which by necessity makes the IPO market (with all of its vagaries) that much more determinative of outcome.

YL Ventures differentiates itself from the strategy described above, by aiming to pursue "medium size" exits via sales to strategic acquirers, with targeted returns of approximately 5 times the original investment. The Fund's strategy offers higher predictability because the investment period is approximately twenty-four months, thereby giving the Fund the possibility to identify potential acquirers well before the investment is made.

Finally, it is noteworthy that, despite the lower multiples on returns that YL Ventures’ strategy involves, the resulting IRR is actually higher than in the case of typical venture funds: a 5x return in 2 years yields a 124% IRR, while a 15x return in 5.8 years, the average venture capital holding period*, yields a 60% IRR.

*Average venture capital holding period reported by Dow Jones VentureOne for investments exited in Q3 2006.