Diversification simulator

Run 1,000 random venture portfolios and see how the number of companies changes the odds of losing money.

Pick a portfolio size and run 1,000 random portfolios. Each company gets an equal cheque and a random outcome from the same spread.

Companies

Illustrative, not a forecast or a recommendation. Random outcomes from an assumed spread, before fees and carry.1

Lost moneyPortfolio returned less than 1×—

Returned 1× to 3×Money back, up to three times—

Returned 3× or moreNeeds at least one big winner—

Middle portfolioMedian multiple, before fees—

Assumptions and sources

Each company's outcome is drawn at random from this assumed spread: 40% return nothing, 25% return 0.5×, 20% return 1.5×, 11% return 5×, 3% return 20× and 1% return 50×. That puts 65% of companies below 1× and 4% at 10× or more, loosely matching the Correlation Ventures data.1 Multiples are gross, before management fees and carried interest, and ignore follow-on investment, timing and dilution. Real portfolios can do much better or much worse.

Sources

Seth Levine (Foundry Group), citing Correlation Ventures, Venture outcomes are even more skewed than you think (2014): 65% of 21,000+ financings, 2004 to 2013, returned less than 1x; 4% returned 10x or more. ↩

General information only. This tool is written for financial advisers and accountants. It doesn't take into account any person's objectives, financial situation or needs, and it isn't tax, legal or financial advice. Tax outcomes depend on individual circumstances and on legislation that may change. Past performance is not a reliable indicator of future performance. Fund interests are offered to wholesale investors only (Corporations Act s708). Tall Order manages an ESVCLP and has an interest in this topic.