Shining a Light Into The Black Box of Venture Returns

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Canadian tech is thriving with ~$4.8 billion* in VC funding in 2020. This is exciting to see and is a key component of the flywheel for building a strong tech ecosystem. The story that’s rarely talked about however, is what we call the “black box of venture returns''. The venture industry tends to keep a tight lid on fund performance and we believe it’s an important metric to have access to, especially as a founder when selecting the best funding partner for your business. As investors in the potential of people, we look for past indicators of performance and leading indicators of their continued success. Similarly, we believe investors should share in the burden of proving they are worthy of being long term partners to entrepreneurs. Which is why we’ve decided to release the anonymized performance of our funds.

First, let’s talk about the rationale for releasing our fund performance. 

  1. Transparency - we ask founders to be transparent with us both during due diligence and post investment; we believe we should be held to the same standards. We have always committed to running a transparent due diligence process, including candid feedback and timely decisions, and we believe this is another step towards full transparency. 

  1. Value - our north star is to be the best partner for early-stage companies: our job begins, not ends, when we make an investment. We believe that if our funds aren’t performing, we aren’t doing our job supporting founders.

  1. Trust - one of the most important factors in a relationship between funders and founders. Having insight to the performance of our companies demonstrates both the quality of founders you’ll be working alongside in the Rhino Community as well as the support we provide to our companies. Before we make an investment, we encourage you to speak with our current founders to hear their honest experience on what it’s like to work with Rhino.

An important thing to note is we do not take credit for the success of our companies. We consider it our privilege to work with some of the most brilliant entrepreneurs and it is their ambition, dogged persistence, contrarian nature, and dedication that is the ultimate value driver. 

Rhino's Founders

We do believe, however, that it is our responsibility to support our founders by adding additional value to extend their team’s capacity and shorten the steep learning curve that often comes with building an early-stage tech startup.

Typically, venture firms invest in a large number of companies with the hopes of a few becoming wildly successful and expecting the rest to fail. We don’t subscribe to that logic and, by design, operate funds with ⅓-½ the number of portfolio companies a typical fund does. As Charlie Munger is fond of saying “the iron rule of nature is: you get what you reward for”. Working with fewer companies drives the following differences in behavior:

  • Conviction: Diversification is the enemy of conviction and concentration demands high conviction. We believe that one of the most “founder friendly” ways an investor can operate is to act with conviction, which is why we have a rule to “never be a yellow cell investor” by providing clear and deliberate passes (and yes… the anti-portfolio [successful companies we passed on] is extensive). It’s not for everyone but it's the approach we take to venture and believe it makes us better, more knowledgeable partners to entrepreneurs. 

  • Support Capacity: Venture capital is, largely, a human-capital driven business. That means every new investment, new board seat, new founder-investor relationship reduces the capacity to support existing relationships (negative network-effects driven business, if you will). We have a saying at Rhino that “our job begins when we make an investment”. That is the ethos we carry with us in every new relationship; we want to earn, not contractually have, the right to be around the table for the good, bad, and highly contested decisions, which is a reflection of the time and effort we invest into building high-trust relationships with entrepreneurs. This is only possible because we concentrate our time and capital into few businesses

Below is the current performance for Rhino Fund I and Fund II


Rhino Fund Performance

Rhino Fund I has been active since 2015 - it is a $14M seed-stage fund, invested in 10 companies, 3 companies have exited and 7 remain active. As of Q4 2020, the return multiple (current valuation/invested capital) is 7.1x. This is a good return by venture standards but it’s still early and much can happen between now and when companies “exit”.

Rhino Fund II started deploying capital in 2018 and is still active. It’s a $33M early-stage fund, invested in 10 companies, to date, with 1 exit. As of Q4 2020, the return multiple is 1.15x. This fund is still in its formative stages with most investments being held at cost. While not yet marked on paper, we are bullish on the value being built by these companies. The exciting part is still yet to come as we work alongside our founders to support them in achieving their vision.

Building early-stage companies is challenging and it’s incredibly important to have the right partners by your side. Everything we do at Rhino is built around our goal of being the best partners for early-stage companies; as we say “entrepreneurs are our customers, not investors”. Releasing our fund performance is another step towards this commitment because we believe transparency is the root of building trust. 

Founders - ask potential investors the same hard questions about their business the way they do yours.


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