Which funds are best placed for success? – Why prior returns matter

Everyone knows the phrase “past success doesn’t guarantee future results”. Research by the National Bureau of Economic Research, however, suggests it is the best predictor of future results. 

Funds that have been best performing historically are most likely to show up as best performing in the future. In fact, top quartile funds tend to repeat such performance nearly 45% of the time.

At Sprout, we are committed to providing access to high quality opportunities. That’s why we consistently partner with funds that have demonstrated top-tier performance across multiple prior funds.

So, why do the best performing funds have the best chance of future performance?

1. Raising again, raising bigger

The best performing funds have a clear advantage when fundraising. The proven success of a fund means existing investors are more likely to recommit. 

These funds also find it easier to attract new investors to raise additional capital, providing them with the resources they need to continue achieving strong results. By capitalising on their past successes, these funds are able to position themselves as market leaders to achieve continual growth.

2. Investing well, consistently

Investment success is often the result of well established processes and ways of working. This may be contacts, networks, sourcing of deals, decision making, and ability to anticipate needs and add value. 

Many of the best performing funds have clear, repeatable strategies and processes that allow them to identify and invest in the best businesses. This is also something Sprout tests when we conduct initial screening on funds. It’s clear which funds are able to articulate how they invest, and how they win – and which funds struggle to articulate their unique selling proposition. 

3. Winning the deals that matter

As more and more venture capital funds enter the market, start-ups are becoming increasingly choosy about which VCs to work with. The best startups are keen to work with VCs who have a proven track record of delivering returns, and can clearly articulate the value they bring to portfolio companies. For these companies, the decision to take investment from a particular fund is often based on its reputation and past performance.

“With the large majority of VC returns coming from a small number of deals and more start-up capital on the table, the power dynamic is shifting. Increasingly, we hear of startups picking their VCs rather than the other way around.”

Sprout is committed to partnering with high-performing funds that can provide access to quality opportunities. We evaluate prospective partners to ensure that they meet our high standards for performance and quality. We believe that this due diligence process is essential to maintaining our high level of service and delivering on our promise to provide top-tier investment opportunities.

Capital at risk.