The World’s Top Venture Capital Firms

Posted on 08/10/2010

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The list below is the work of Andrew Metrick (Yale School of Management) and Ayako Yasuda (Graduate School of Management, UC Davis), taken from Chapter 5 of the textbook, “Venture Capital and the Finance of Innovation“, which is available for download here.

They calculate the rankings using the following methodology:

  1. In the last several years, the industry publication Private Equity Analyst has reported on firms that have been able to raise their carried interest to 30 percent. The publication identifies eight such VC firms, including all six firms from Group A. A seventh firm, New Enterprise Associates, is included in Group B. The eighth firm, Bain Capital, charged a 30 percent carry on a VC fund, but had earned its reputation (and an earlier 30 percent carry) primarily as an LBO firm.
  2. The Private Equity Performance Monitor, a new industry publication first discussed in Chapter 3, allows us to observe the performance for 1,193 VC funds. From this sample of funds, 63 (about 5 percent) have achieved at least star status. Of these 63 stars, 18 had committed capital of less than $50M, so we drop them.3 Of the remaining 45 stars, 14 have achieved superstar status. Only six firms have achieved a superstar fund with at least $100Min size plus another star (or better) fund. These are the six firms in Group A. (Not coincidentally, this represents six of the eight firms with a confirmed 30 percent carry.)
  3. Items (1) and (2) make it easy to identify the top six firms for Group A. To identify the nine firms in Group B, the primary driver was consistency of top-quartile and top-half performance, presence of star funds (if any), combined with information on carried interest percentage (when available), history of innovative VC strategy, and our own subjective view of their reputation in the industry.

The results are interesting in that a significant geographical concentration is apparent, firstly within the USA (no non-US funds make the list), secondly within California (66% of the total) and thirdly at Menlo Park, which is home to 53% of the funds.  This suggests that there are significant agglomeration economies within the venture capital industry as firms benefit from locating close to one another.  Seconldy, it suggests that start-up firms in these areas may have a significant benefit over others due to the greater availability of capital.

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