Considering our course discussion, which of the below are correct for an early-stage venture capital investment fund? (select all that apply)

Question

Considering our course discussion, which of the below are correct for an early-stage venture capital investment fund? (select all that apply)

BlackTom AI · Accepted Answer

Question restatement: The prompt asks which statements are correct for an early-stage venture capital investment fund, given a scenario with a select-all-that-apply format.
Option A: 'In an early-stage, 10-investment, fund portfolio target projection, it would be expected that 4 investments go bankrupt (return 0x)'. This aligns with a typical venture capital risk profile where a substantial portion of a diversified early-stage portfolio may fail entirely. With 10 investments, having around 40% as zero-revenue or zero-value outcomes is within common industry heuristics, acknowledging that many startups die or fail to return capital. The calculation follows the idea that a handful of winners are needed to offset losses and still generate overall fund returns. The reasoning hinges on diversification and the high-risk nature of seed/early-stage investing, where a majority can underperform or fail, while a minority drive outsized returns.
Option B: 'An early-stage fund target for an individual company "homerun" return is >10x'. This statement is consistent with venture capital norms where a meaningful portion of a fund’s success is expected to come from a small number of exceptional exits. A >10x multiple on a single company is a common benchmark for a homerun or breakout winner that materially moves the portfolio’s overall performance. VC models often emphasize that such top performers skew the fund’s IRR and multiple-on-invested-capital; aiming for >10x on select investments reflects that reality.
Why alternative statements (if considered) would be wrong: Since there are no additional answer options listed beyond A and B, we cannot critique non-existent choices directly. However, in general, a claim that a majority of investments are expected to return 0x would be overly pessimistic given diversification, while asserting that all successful investments must be >10x would be unrealistically stringent for a balanced portfolio; successful funds typically count a range of outcomes from total loss to modest exits to homeruns.
In summary, both presented statements capture standard early-stage VC expectations: a diversified 10-investment portfolio may include several 0x outcomes, while a few homerun exits (>10x) are essential to achieve attractive overall fund performance.

ES 212 003 FA 2025 Quiz 6

Considering our course discussion, which of the below are correct for an early-stage venture capital investment fund? (select all that apply)

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