How do you track your portfolio's success?

1 Return on Investment

One of the most common and simple ways to evaluate your portfolio is to calculate the return on investment (ROI) for each company. ROI is the ratio of the net profit or loss to the initial investment, expressed as a percentage or a multiple. For example, if you invest $1 million in a startup and sell your shares for $3 million, your ROI is 200% or 3x. You can compare the ROI of different companies, stages, sectors, and geographies to see which ones are generating the highest returns and which ones are underperforming.

2 Internal Rate of Return

Another metric that you can use to measure your portfolio is the internal rate of return (IRR), which is the annualized compound interest rate that makes the net present value of your cash flows equal to zero. IRR takes into account the timing and size of your investments and exits, as well as the opportunity cost of capital. For example, if you invest $1 million in a startup and receive $2 million after three years, your IRR is 26%. You can compare the IRR of your portfolio to the IRR of other asset classes, benchmarks, or funds to assess your relative performance and risk-adjusted returns.

3 Cash-on-Cash Return

A third metric that you can use to track your portfolio is the cash-on-cash return (CoC), which is the ratio of the cumulative cash distributions to the total cash invested, expressed as a percentage or a multiple. CoC measures how much cash you have received from your portfolio, regardless of the valuation or exit potential of the companies. For example, if you invest $1 million in a startup and receive $500,000 in dividends and $1.5 million in exit proceeds, your CoC is 200% or 2x. You can use CoC to evaluate the liquidity and cash flow of your portfolio and to estimate your future distributions.

4 Portfolio Valuation

A fourth metric that you can use to track your portfolio is the portfolio valuation, which is the estimated market value of your holdings based on the latest financing rounds, exits, or market multiples. Portfolio valuation reflects the unrealized gains or losses of your portfolio and can change over time depending on the market conditions and the performance of the companies. For example, if you invest $1 million in a startup and own 10% of the shares, and the startup raises another round at a $20 million valuation, your portfolio valuation is $2 million. You can use portfolio valuation to monitor the growth and potential of your portfolio and to report to your stakeholders.

5 Portfolio Management Software

To help you track and analyze your portfolio metrics, you can use portfolio management software that automates the data collection, calculation, and visualization of your performance indicators. Portfolio management software can also provide you with insights, reports, and alerts on your portfolio trends, risks, and opportunities. Some examples of portfolio management software for venture capitalists are Carta, Visible, and Seraf. You can choose the software that suits your needs, preferences, and budget.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?