What is the best way to evaluate a venture capitalist's success?

3 Multiple on invested capital

Another common metric for VCs is multiple on invested capital (MOIC), which is the ratio of the total value of the investment to the initial capital invested. MOIC is similar to ROI, but it does not consider the time factor, meaning that it does not discount or compound the cash flows. MOIC can be useful for comparing the relative performance of different investments, regardless of their duration, size, or stage. However, MOIC is also limited, as it does not reflect the risk-adjusted return, the opportunity cost, or the non-financial impact of the investments.

4 Fund vintage and quartile

A more relative and contextual metric for VCs is fund vintage and quartile, which is the ranking of a fund based on its inception year and its performance relative to other funds in the same year and category. Fund vintage and quartile can help VCs assess their performance against the market conditions, the industry trends, and the peer competition. Fund vintage and quartile can also help VCs attract and retain investors, partners, and talent, as they signal their reputation and credibility. However, fund vintage and quartile is also subjective, as it depends on the data source, the sample size, the selection criteria, and the calculation method.

5 Non-financial impact

A more holistic and emerging metric for VCs is non-financial impact, which is the measurement of the social and environmental outcomes and value created by the investments. Non-financial impact can help VCs align their goals and strategies with the global challenges, the stakeholder expectations, and the ethical standards. Non-financial impact can also help VCs differentiate themselves, create positive spillovers, and enhance their long-term returns. However, non-financial impact is also challenging, as it requires a clear definition, a consistent framework, a reliable data collection, and a credible verification.

As you can see, there is no single or definitive way to evaluate a VC's success, as each metric has its own strengths and weaknesses, and each VC has its own objectives and preferences. Therefore, it is important for VCs to use a combination of metrics, to adjust them according to the context, and to communicate them transparently and honestly.