Jason M. LemkinCEO, SaaStr · Co-Founder of SaaStr AI, SaaStr Fund, Adobe Sign

The Harsh Reality of Venture Capital Returns

17 Jun 2023 · 1 min

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1:09

Jason M. Lemkin explains why making money in venture capital is difficult by walking through simple arithmetic examples. He contrasts a $500M fund’s return targets (3x → $1.5B) with typical exit outcomes (e.g., investing $10M for 10% in a company that exits at $300M yields only $30M) and gives a Figma example (1% of a $20B exit → $200M) to show how even large outcomes can fall short of a fund’s overall goal. The piece emphasizes that VC behavior is driven by this math, not just greed.

Questions this video answers

$500 million

Invest $10 million for 10% ownership

$30 million

At least 3x (turn $500M into $1.5B)

Exit $20 billion, 1% ownership → $200 million return

Chapters

It's just, just so you know, so you don't bang your head against the stage. It's so hard to make money in venture, right? Let's just do some quick math for fun, you know, on day three. But let's say you have a 4,500 million dollars venture fund. To keep your math simple, 500 million. And you invest 10 million for 10% of a company and it. And it sells for 300 million. Like that's pretty good exit, right? It's not. How much do you make? 30 million. How much of your 500 have you paid back? You haven't even made 10% back. And the clock is ticking. Your goal as a VC fund is to do at least 3x and obviously more. So that 500 million venture fund has to turn that into at least $1.5 billion. One point. Now let's imagine you invested early in Figma. I mean, good God, 20 billion and you owned 1%. How much do you make? 200 million. Like you're not even halfway. Like you don't. You don't even get a thank you note from your LPs, right? So I know working with VCs, the later stage, it can be frustrating. But at least in anything in the world, you want to understand their business model. Why do my customers act this way? The VC thing, it's not just greed. It's just hard to make all that money back. And until you think about the math, you don't realize why.