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How venture firm IVP was able to raise $1.4 billion in less than 3 months — and why it doesn’t think we’re in a bubble
(IVP)IVP General Partner Todd ChaffeeWhen Institutional Venture Partners (IVP) first announced it’s raising a new fund, “IVP XV,” in February, the 35-year old VC firm didn’t have to go out of its way to find limited partners willing to invest in it.
Instead, LPs came pitching them on why IVP had to take their money.
“IVP XP was a quick and easy fundraise,” general partner Todd Chaffee tells us.
On Thursday, IVP made it official that it’s closed the fund with $1.4 billion in capital, the largest fund it’s raised in history.
“Like our previous funds, the LP demand was exceptionally strong and we were significantly oversubscribed,” Chaffee says.
The reason for this, he says, is quite simple: high returns.
Chaffee says IVP’s last fund (IVP XIV) has above 70% net internal rate of return (IRR), a common metric used to measure profitability, while its 34-year IRR sits at 43.2%. Those are significantly higher returns than the average for top-performing US fund managers or VC firms.
IVP’s portfolio companies also have a 92% compound annual growth rate (CAGR), meaning they’re nearly doubling cumulative revenue every year. That number jumps to 209% if you only account for the private companies in its portfolio. Some of the companies IVP’s invested in early include Twitter, Dropbox, and Snapchat.
“Our performance has been pretty good and that’s the reason we’ve had such a strong demand for IVP XV,” Chafee says.
For the new fund, IVP plans to invest in a total of 12 to 15 companies annually, with each receiving capital in the range of $10 million to $100 million. IVP has traditionally invested in later-stage startups, with valuations above $100 million, and has a pretty equal balance between consumer and enterprise companies in its portfolio.
Chaffee agreed the current fundraising environment might be “close” to being one of the easiest in history, but was quick to say it’s nothing like the late 90s dot-com bubble. He said the market opportunity and the quality of companies are vastly better than what we saw in the past.
For example, he points out the median revenue of tech companies going public in 2014 was $121 million, as opposed to the $20 million in 2000. They're also less overvalued: enterprise value over revenue multiple has dropped significantly to 3.7x in 2014 from 9.9x in 2000.
Plus, companies are growing much faster than in the past, as mobile gaming company Supercell got to $1 billion in revenue in just 18 months — a milestone that took more than a decade for Apple and Microsoft to accomplish.
“It’s real capital being raised by real companies, as opposed to the bubble when it was really speculative,” he adds. “LPs are pitching us because the returns are so high. We have a lot of capital to deploy. It’s a very straightforward and proven model for us.”
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