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Venture capital fund cash flows: The J-curve

Any attempt to analyse a venture fund must take into account the way in which such a fund works and the resulting J-curve. A traditional 'Net Asset Value' approach is inappropriate and is likely to give the mistaken impression during the early years of a fund's life that it has been extremely unsuccesful, according to venture capital fund of funds Mowbray Capital.

The only way to arrive at the present value of a venture fund is to attempt to predict the amount and timing of future cash flows, and then calculate the resulting multiple and IRR. The margin for error obviously narrows significantly as the fund ages and uncertainty lessens.

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Mowbray Capital is a venture capital fund of funds focused exclusively on the European market. For more information please visit www.MowbrayCapital.com.