In Turkey, especially in the last 10 years, venture capital has gained significant importance in investor portfolios. The main reasons for this include the performance of venture capital compared to other asset classes, technology companies remaining private for a longer duration, and the increasing impact of technology in our lives. As Startupfon, we provide strategic guidance to our investors in the field of venture capital and support them in making successful investments. Here are some common mistakes.

1. Making Cyclical Investments

The venture capital market, like other markets, shows cyclical movements. The investor frenzy between 2019 and 2021 followed by the pullback in 2022-2023 is the biggest evidence of this. According to Cambridge Associates data, the top quartile venture capital returns in the five years following market corrections were 27% to 38% higher than the three years prior to the correction. This demonstrates the importance of consistently making venture capital investments. A long-term venture capital investment can generally be self-financing by the fifth or sixth year, thereby reducing the risk of investments made at high prices. With Startupfon, we can help you set your investment goals and support you in making regular investments each year.

2. Overemphasising Past Performance

The past performance of venture capital funds may indicate how successful a manager has been. However, this does not mean they will achieve the same success in the future. While there may sometimes be continuity in performance in venture capital, it is more important to understand why and how a manager has been successful. Additionally, it takes many years for a fund manager's past performance to become clear. When evaluating past performance, micro and macro factors such as team size, competitive environment, and economic conditions should also be taken into account. Moreover, valuation methods should be examined carefully; because the value of the assets held by a fund may be inflated or diminished. As Startupfon, we would be happy to guide you in your participation in our venture capital funds.

3. Viewing Venture Capital as an Index

Venture capital is not a homogeneous industry. A small percentage of successful companies yields substantial returns. According to data from Cambridge and Pitchbook, the top quartile venture capital funds provided 20% more returns annually than the bottom quartile funds. This indicates a significant return disparity between very good and very poor funds in venture capital. Comparing a small seed capital fund to a large growth-focused fund can be misleading. Analyze venture capital funds carefully with Startupfon’s experienced team and evaluate the most suitable options.

4. Focusing on Management and Performance Fees

Management fees and performance fees are factors to consider in venture capital investment; however, the primary goal is to maximize net return performance. Some investors avoid funds that demand fees over the 2/20 fee structure (2% management fee, 20% performance fee), but the important aspect is whether the fee structure offered by the manager justifies the performance. For example, even though large funds like Sequoia take a 30% performance fee, they have consistently provided high returns to investors.

5. Investing Randomly

A common mistake in venture capital investment is selecting funds without adequately assessing their alignment with the overall portfolio. Successful venture capital investment requires careful portfolio construction and understanding how investments relate to one another. The investment focus, strategy, and geography of the venture capital fund you choose should be proportional to your other investments and your vision. As Startupfon, we help you build a balanced and diversified portfolio to protect you against market fluctuations.

6. Making Investments Based on Trends

This is a common phenomenon in venture capital. For example, the late-stage investment frenzy from 2019 to 2021 or investments in artificial intelligence and Web3 funds illustrate this phenomenon. However, caution is needed. When trends everyone is aware of heat up, usually lower-quality companies get funded at high valuations, which increases risks and decreases returns. Benefit from Startupfon’s strategic guidance to see real opportunities beyond the trends.

Conclusion: Success in Venture Capital with a Long-Term Strategy

Venture capital is a complex and dynamic field. Therefore, a strategic approach, a long-term perspective, and an in-depth understanding of market dynamics are essential. As Startupfon, we are here to assist you in achieving success with your investments. Instead of chasing trends or trying to time the market, creating a diversified portfolio, staying true to market cycles, and focusing on deal quality is key to long-term success. As your guide in venture capital, we help you make strategic decisions on this journey. In this marathon, it is important to proceed with patience, vision, and a steady pace; Startupfon will guide you every step of the way.