How do you benchmark your portfolio performance against your peers and competitors?

2 How to choose a benchmark

Choosing a benchmark is not an easy decision, as there is no single solution that fits all. You must take into account your portfolio's size, stage, sector, geography, and objectives, as well as the availability and quality of data, the frequency and consistency of reporting, and the comparability and relevance of the metrics. Common benchmark types include industry benchmarks, which are based on the aggregated performance data of a large group of venture capital funds or companies in a specific industry or sector; peer benchmarks, which are based on the performance data of a smaller group of venture capital funds or companies that share similar characteristics or criteria with your portfolio; and target benchmarks, which are based on the performance data of a specific fund or company that you aspire to emulate or surpass. For example, you can use the Cambridge Associates US Venture Capital Index or the PitchBook-NVCA Venture Monitor to compare your portfolio to the US venture capital market; the Kauffman Fellows Fund Report or the Prequin Private Equity Online Database to compare your portfolio to other funds of similar size, stage, sector, or geography; and annual reports or press releases of a leading fund or company in your industry or sector to compare your portfolio to their results.

3 How to measure performance

Measuring performance is not a straightforward task, as there is no single metric that can accurately reflect the performance of your portfolio. Therefore, you should use a combination of financial and non-financial metrics that correspond to your objectives and outcomes. Financial metrics, such as internal rate of return (IRR), net present value (NPV), cash-on-cash multiple (CoC), total value to paid-in capital (TVPI), or net asset value (NAV) can help you measure profitability, efficiency, and growth potential. Non-financial metrics, like social return on investment (SROI), environmental, social, and governance (ESG) criteria, customer satisfaction, employee engagement, or innovation can help you assess your portfolio's contribution to society, environment, or industry.

4 How to compare performance

Comparing performance is not a simple task, as there is no universal standard or formula that can adequately consider the differences and nuances of your portfolio and your benchmark. To accurately assess performance, you should use a method or tool that can adjust and normalize data, analyze results, and present and communicate findings. The public market equivalent (PME) method is a popular choice for this purpose; it compares the performance of your portfolio to a public market index by calculating the ratio of cash flows and values. If the PME ratio is above one, your portfolio outperforms the public market index, whereas a PME ratio below one indicates underperformance. Alternatively, you can use a benchmarking tool like eFront Insight to compare your portfolio's performance to a selected benchmark using various metrics and methods. This platform provides access to venture capital performance data and analytics.

5 How to improve performance

Improving performance is a continuous process, so you should use a feedback loop to monitor and evaluate your performance, identify and implement best practices, and track and report your progress. To do this, you should regularly measure and compare your portfolio's performance against your benchmark. Analyze the results to identify factors that affect your performance, such as market trends or investment decisions. Consult with peers and mentors to learn from their experiences and insights, then identify and implement the best practices that can help you improve your performance. Track and report your performance improvement to stakeholders such as investors or customers, celebrating and rewarding achievements while learning from challenges. Benchmarking your portfolio performance against others is a vital practice that can help you improve your venture capital skills and results, so make sure to choose a relevant benchmark to measure and compare your performance. By doing so, you can enhance your portfolio's returns, risks, and impact.

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?