What kind of return do VC/PE Firms Expect? Angel investors?

Most of Venture Capital/Private Equity fund managers tend to promise their invstors a return of anywhere between 15 and 30%. Therefore, they must look for opportunities that promise even higher returns, since not all their investments will be profitable; typically the VC/PE manager will have to write off some of their investments.

Venture Capital/Private Equity firms expect returns that are commensurate with the risk and illiquidity of the securities in which they invest. The expected return varies from country to country, and also depends on the stage of the companies in which the investment is made.

An important point to remember is that VC/PE firms typically invest other people’s money. Limited Partners, who invest in venture capital funds, are looking for high returns and have a wide range of choices, since there are over 3000 VC/PE funds in the world. Funds that are consistently in the top quartile in terms of return on equity are more likely to be able to raise money than those with a less attractive track record. Thus, VC/PE fund managers have an incentive to seek very high returns in order to remain in the top quartile, which can be a moving target.

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