The Top LPs Made 95% Or Higher Returns on Venture and Private Equity in 2021 | SaaStr

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So 2021 was a crazy year for venture capital, topping 1,000 unicorns and an IPO-a-day.

But how did that translate into returns?

Very well for top Limited Partners (“LPs”), the folks that invest in VC funds, and give them the capital to invest in startups.  Very well indeed.

Wesleyan University has a relatively small endowment but it published a terrific report on how they and others did here.  And 2021 was a year like they’d never seen:

1. The benchmark returns from VC + PE returns was a stunning 62% for 2022.  Wesleyan itself did 95.3% returns in 2022 from Private Equity (including Venture):

2.  It wasn’t just venture, of course, the stock market did incredibly well in 2021.  But Private Equity investments at top LPs (endowments, universities, family offices, etc) did even better than that . Wesleyan’s endowment for example grew 54% overall last year.  But it grew 95% from venture and private equity (!!).  Woah.

3. As you can, these huge gains (even though many are on paper), so swell endowments that for now, even with some market tumult, there’s more and more investment dollars to go into venture and PE.  Look how much Wesleyan’s endowment grew in 2021, and it’s a relatively small one:

4. With endowment growth, and PE/VC being the top-performing category — LPs themselves need to write larger checks to keep it up.  And their managers (the VC funds they invest in) are also investing faster and faster.  This drives capital to Opportunity Funds, Growth Funds, Select Funds, etc. and other later-stage vehicles more than ever.  Because they can deploy a lot of capital, much more than a seed fund alone.  This is one reason you see so much of the growth in venture going into late-stage deals.  And you are seeing LPs happy to fund new and additional Opportunity and Select Fund add-ons to their top seed and Series A VCs.  It’s a way for them to deploy more capital and keep up efficiently.

5. Even though some, maybe even most, LPs are skeptical how long the great times will last, the results are unprecedented. You can see top Median University performance was 42% last year vs. 10% average past decade.  And importantly, VC + PE were the top-performing asset class in 2021.  This incents everyone to keep investing more and more there:

So 2021 wasn’t just good times — it was great times for the top VC funds and importantly the top LPs that give them money.  That’s why you are seeing multiple multi-billion venture funds seemingly popping up multiple times a week.

But when things get a little less good, the returns of venture and private equity may not outperform other asset classes or the public markets.  And that may quickly shrink the pool of new, additional capital flowing to venture and private equity.  The great times could quickly revert to merely good times.  And if it does, the amount of capital especially to fund massive unicorn and decacorn rounds could slow down or even shrink.

We’ll see.

A bit more on unicorn creation in 2021 here:

Published on January 14, 2022

Go to Publisher: SaaStr
Author: Jason Lemkin