Here's how you can assess your own performance in venture capital.

Top line value of your investments and ultimately cash to LPs is the only true and final measure of your performance. But because that takes time, I also like to speak with other emerging managers about these three leading indicator qualitative metrics: 1. IRR 2. Median step up at next round 3. Median portfolio company YoY revenue growth And finally, this qualitative one: 4. Founder / VC firm satisfaction Finally, since financing innovation is its own hard won skill set, I also track capital catalyzed by our team in our portfolio. For example, we can show founders $11 of capital we have catalyzed for every $1 invested — we’re a strong, signal-creating lead in our niche of AI and SaaS in the South.

To complement traditional performance metrics, consider evaluating your ability to cultivate and maintain strong relationships with your Limited Partners (LPs). This involves regular communication, transparency in reporting, and proactive engagement in addressing their concerns. Building trust and rapport with your LPs not only ensures continued fundraising success but also solidifies your reputation as a reliable and trustworthy partner in their investment journey.

To complement traditional financial metrics, I suggest incorporating qualitative assessments like customer satisfaction surveys, employee feedback, and industry awards into your performance evaluation. These factors can provide valuable insights into the intangible aspects of your investment decisions, such as brand reputation, company culture, and overall impact on the industry.

Evaluating the value of your portfolio is crucial for assessing your performance as a venture capital investor. By tracking financial metrics, benchmarking against industry standards, analyzing investment outcomes, and considering both quantitative and qualitative factors, you can gain a comprehensive understanding of your portfolio's performance. Regular reviews and strategic adjustments will help you stay on course and achieve your investment objectives.

Evaluate the growth and current value of your investment portfolio. Assess how well your investments are performing relative to their initial valuations and projected growth targets, highlighting your ability to identify and nurture successful ventures.

The ultimate goal and venture is to return Far in excess to what was invested. Therefore, the metric that I follow most closely in the long run is total dollars returned relative to total dollars invested. Venture is an exercise that takes many years to come to fruition, There are a number of shorter term metrics that help ascertain whether you are on your way to this ultimate goal. Some people like to look at the internal rate of return, which could be useful when comparing investments in different asset classes, yet can be very confusing when you are assessing early tenure, venture funds.

Analyze the outcomes of your exits. Review the returns generated from successful exits, the timing, and the strategic decisions leading to those exits. This analysis provides insights into your capability to realize value from investments and generate profitable outcomes.

Measure the quality and quantity of deals you source. Evaluate the diversity, potential, and conversion rate of your deal pipeline. High-quality deal flow reflects your networking skills, market presence, and ability to attract promising investment opportunities.

I have been hearing about a “bid-ask spread” issue in the lower middle market healthcare space. First, by “bid-ask spread,” I mean that seller expectations are not aligned with buyer expectations when it comes to valuation, discouraging M&A activity. Another dislocation I see is the implied risk premium between equity and debt investments. Right now, I am hearing that private credit funds are lending in the neighborhood of SOFR plus 6%, or over 11% total. Compared to 20%-30% IRR thresholds for certain PE funds, this represents a historically low equity risk premium. If interest rates remain high, the way the equity risk premium will increase will be for entry valuations to decline or exit prices to increase.

Assess your understanding and anticipation of market trends and shifts. Regularly review how accurately you predicted industry developments and how effectively you adjusted your strategies. Strong market insight indicates your ability to stay ahead of the curve and make informed investment decisions.

Compare your performance against industry peers. Benchmark your returns, deal flow, and exit success rates against other VCs. This comparison helps you identify areas for improvement, understand industry standards, and gauge your competitive standing in the venture capital landscape.

Open yourself to diverse opinions from successful investors -- not just those that align with your thesis. Learn how and why they chose the investments they did, why did they work, where did their intuition fail?

Objectively speaking, I would consider Total Value to Paid in Capital (TVPI), Multiple on Invested Capital (MOIC), Distributions to Paid-in Capital (DPI), and Internal Rate of Return (IRR). If the fund is fully invested and all proceeds have been returned to LPs, then the IRR and MOIC would make the most sense since you can measure the actual cash returned to investors and benchmark it against other funds within a similar time period. However, since VC funds are illiquid I've seen a considerable amount of attention being paid towards DPI, whereas, fund managers who have returned capital to investors are more successful raising follow-on offerings than funds who are falling behind in doing so.