VC’s Medium- to Long-Term Perspective: Fund Life Determines the Investment Horizon

Robin: “VC’s medium- to long-term perspective.” VC funds commonly have a life of around 10 years; some are shorter, at five to seven years. Compared with mutual funds investing in the secondary market, however, VC remains a medium- to long-term investor. We have to think about changes in trends in years, and can even disregard daily fluctuations, since, fundamentally, the exit route has not been misjudged. Protected by the conditions of the VC industry, practitioners can try to position investments over roughly five to ten years. They must be able to sense which trends will unfold during that period and which are only brilliant but short-lived fireworks. Given the limits of a VC fund’s term, it may not be particularly appropriate for a practitioner to talk about positioning for industry trends 15 to 20 years ahead. In other words, ultra-long-term thinking does not fit especially well with a form of investing that needs to achieve explosive growth within a fixed period. This means VC practitioners need to understand the conditions of their environment and apply their strengths within them. Without recognizing the constraints of their industry, they may not perform well. Neither short-term nor ultra-long-term thinking is suitable for VC investing. If a practitioner truly identifies an industry trend 20 years ahead, but the fund expires after 10 years and must reduce its capital and wind up, they may fall agonizingly short halfway through—perfectly paving the way for those who come later.