Venture Capital: Worth Venturing Into?

Replicating Venture Capital Returns

February 2020. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Venture capital returns are likely to be overstated
  • Top-performing VC funds generated attractive returns, but are difficult to access
  • Average venture capital returns can be replicated efficiently with public equities


The further the global financial crisis retreats into history, the clearer the winners and losers become. Insurance companies, banks, pension funds, savers, and renters have all suffered from the subsequent central bank policies that pushed interest rates to all-time lows.

In contrast and in an ironic twist, investors in such leveraged asset classes as real estate and private equity have benefitted from the low interest rate environment. But the biggest winner of all is probably venture capital (VC). Why? Because in a low-growth environment, growth is almost priceless.

The VC industry had an eventful 2019. Valuable start-ups like Uber and Lyft went public, but cracks started to appear in the bullish outlook and valuations of high-growth firms. This shift in investor sentiment became clear as the real estate start-up WeWork readied for its initial public offering (IPO) in August: The deal collapsed and the start-up’s valuation plunged from $47 billion to about $10 billion in a matter of weeks.

For a venture capitalist, an IPO is the ultimate achievement, the equivalent of a father walking his daughter down the aisle. No longer a start-up, the company is now mature and ready to pursue its own path with a new partner. But public capital tends to be quite different from private capital. Which can make for a bad marriage.

Last year, as measured by two exchange-traded funds (ETFs) that provide access to recently listed firms, IPOs at first outperformed the NASDAQ Composite. But from September onward, they underperformed – a reversal of fortune that coincided with the WeWork implosion.