The modus operandi for the world's top venture capital funds is similar to that of a power hitter in baseball: lots of home run swings, some of which lead to strikeouts but occasionally they produce a towering home run.
In this breakdown of five of the top venture capital funds today, we'll first discuss the key differences between the elite funds and the rest and then highlight these five funds in terms of their size and notable investments.
The difference between top venture capital funds and the rest
If you accept that venture capital is a game of big home run swings, then it shouldn't surprise you that the media tends to focus on the home runs while largely ignoring the strikeouts.
That isn't just because the home runs make for better reading. When a venture capital firm really hits one out of the park, that deal alone can be enough to catapult the firm into the upper echelons of the entire industry.
For example, three of the top five venture capital funds listed here were early investors in Facebook. The other firms were either not yet in existence or were left spurned at the negotiating table by Facebook founder Mark Zuckerberg.
These firms typically make 30 to 50 investments per year, as do most of the other prominent VC funds. Some of those investments flop, and others work out with reasonable returns. That distribution is fairly consistent across the industry. The driver, be it because of skill or blind luck, really is that one or two investments in one or two companies will dominate their corner of the universe.
The top firms will boast investments in companies that started out as unknowns but rapidly became household names -- Facebook, Twitter, AirBNB, and others. To make the top five, the singles and doubles just won't cut it. The top funds are at the top because of the grand slams.
Selecting the top venture capital funds is no easy task. There are dozens and dozens of deserving firms, both large and small. There's the old guard in Silicon Valley like Kleiner Perkins Caufield Byers and Andreesen Horowitz, and there are upstarts like the $33.5 million fund below that Fortune magazine called "the best performing VC fund ever." To rank the firms one must consider size, influential deals, return success, and influence in the industry. It's a careful art between the quantitative and the qualitative.
Without further ado, here are my five top venture capital funds you need to know:
|Fund||Assets Under Management||Notable Investments|
|1. Sequoia Capital||$10 billion||Github, Yik Yak, AirBNB, Jawbone, Evernote|
|2. Accel Partners||$9.6 billion||Facebook, Slack, Lynda.com, Birchbox, Etsy|
|3. Benchmark Capital||$3.5 billion||Facebook, Twitter, Tinder, Xapo, Quora, Dropbox, Snapchat|
|4. Greylock Partners||$3.9 billion||Facebook, AirBNB, LinkedIn, Medium, Dropbox|
|5. LOWERCASE Capital||$33.5 million||Twitter, Uber, Instagram, Stripe, Automattic|
Why venture capital matters to stock market investors
Venture capital funds are not accessible for retail investors. They're privately managed, and only a select few connected and accredited investors have direct access to invest.
However, for the rest of us, there is value in following these funds. They are generally ahead of the rest of the market in terms of the products, services, and trends that will grab the public's attention next. Following where these funds are investing can be a directional indicator for new competition and new opportunities on the public markets.
Likewise, these funds are investing today in what could be the headline-grabbing IPOs of the future. Understanding these companies early on, before they reach that moment, can give you a head start in your analysis down the road when that IPO takes center stage.