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In the context of a legal agreement—which is what a term sheet is—a “schedule” is a list of things that are referenced in the agreement. Often, for complex agreements, there are many things that need to be listed. Examples might be:Names and salaries of employeesNames and ownership interests of shareholdersSoftware licensesPatents and intellectual propertyComputers and other owned equipmentLeases the company has signedEtc.Instead of putting all this directly into the agreement, they will instead be listed separately and attached to the end, with the agreement itself just saying something like “the employees as listed in Schedule A”.There is no particular order in which schedules are attached, although it is typically in the order in which they are referenced in the document. And for purposes of clarity, each schedule is numbered (or, more often, lettered, starting with “Schedule A”.)To give you an idea of the kind of schedules you might find in the actual closing documents of an investment (although likely not the term sheet), take a look at this typical due diligence list:A. Organization of the Company1. Describe the corporate or other structure of the legal entities that comprise the Company. Include any helpful diagrams or charts. Provide a list of the officers and directors of the Company and a brief description of their duties.2. Long-form certificate of good standing and articles or certificate of incorporation from Secretary of State or other appropriate official in the Company's jurisdiction of incorporation, listing all documents on file with respect to the Company, and a copy of all documents listed therein.3. Current by-laws of the Company.4. List of all jurisdictions in which the Company is qualified to do business and list of all other jurisdictions in which the Company owns or leases real property or maintains an office and a description of business in each such jurisdiction. Copies of the certificate of authority, good standing certificates and tax status certificates from all jurisdictions in which the Company is qualified to do business.5. All minutes for meetings of the Company's board of directors, board committees and stockholders for the last five years, and all written actions or consents in lieu of meetings thereof.6. List of all subsidiaries and other entities (including partnerships) in which the Company has an equity interest; organizational chart showing ownership of such entities; and any agreements relating to the Company's interest in any such entity.B. Ownership and Control of the Company1. Capitalization of the Company, including all outstanding capital stock, convertible securities, options, warrants and similar instruments.2. List of securityholders of the Company (including option and warrant holders), setting forth class and number of securities held.3. Copies of any voting agreements, stockholder agreements, proxies, transfer restriction agreements, rights of first offer or refusal, preemptive rights, registration agreements or other agreements regarding the ownership or control of the Company.C. Assets and Operations1. Annual financial statements with notes thereto for the past three fiscal years of the Company, and the latest interim financial statements since the end of the last fiscal year and product sales and cost of sales (including royalties) analysis for each product which is part of assets to be sold.2. All current budgets and projections including projections for product sales and cost of sales.3. Any auditors (internal and external) letters and reports to management for the past five years (and management's responses thereto).4. Provide a detailed breakdown of the basis for the allowance for doubtful accounts.5. Inventory valuation, including turnover rates and statistics, gross profit percentages and obsolescence analyses including inventory of each product which is part of assets to be sold.6. Letters to auditors from outside counsel.7. Description of any real estate owned by the Company and copies of related deeds, surveys, title insurance policies (and all documents referred to therein), title opinions, certificates of occupancy, easements, zoning variances, condemnation or eminent domain orders or proceedings, deeds of trust, mortgages and fixture lien filings.8. Schedule of significant fixed assets, owned or used by the Company, including the identification of the person holding title to such assets and any material liens or restrictions on such assets.9. Without duplication from Section D below, or separate intellectual property due diligence checklist, schedule of all intangible assets (including customer lists and goodwill) and proprietary or intellectual properties owned or used in the Company, including a statement as to the entity holding title or right to such assets and any material liens or restrictions on such assets. Include on and off balance sheet items.D. Intellectual PropertyList of all patents, trademarks, tradenames, service marks and copyrights owned or used by the Company, all applications therefor and copies thereof, search reports related thereto and information about any liens or other restrictions and agreements on or related to any of the foregoing (without duplication from attached intellectual property due diligence checklist).E. Reports1. Copies of any studies, appraisals, reports, analyses or memoranda within the last three years relating to the Company (i.e., competition, products, pricing, technological developments, software developments, etc.).2. Current descriptions of the Company that may have been prepared for any purpose, including any brochures used in soliciting or advertising.3. Descriptions of any customer quality awards, plant qualification/certification distinctions, ISO certifications or other awards or certificates viewed by the Company as significant or reflective of superior performance.4. Copies of any analyst or other market reports concerning the Company known to have been issued within the last three years.5. Copies of any studies prepared by the Company regarding the Company's insurance currently in effect and self-insurance program (if any), together with information on the claim and loss experience thereunder.6. Any of the following documents filed by the Company or affiliates of the Company and which contain information concerning the Company: annual reports on SEC Form 10-K; quarterly reports on SEC Form 10-Q; current reports on SEC Form 8-K.F. Compliance with Laws1. Copies of all licenses, permits, certificates, authorizations, registrations, concessions, approvals, exemptions and other operating authorities from all governmental authorities and any applications therefor, and a description of any pending contemplated or threatened changes in the foregoing.2. A description of any pending or threatened proceedings or investigations before any court or any regulatory authority.3. Describe any circumstance where the Company has been or may be accused of violating any law or failing to possess any material license, permit or other authorization. List all citations and notices from governmental or regulatory authorities.4. Schedule of the latest dates of inspection of the Company's facilities by each regulatory authority that has inspected such facilities.5. Description of the potential effect on the Company of any pending or proposed regulatory changes of which the Company is aware.6. Copies of any information requests from, correspondence with, reports of or to, filings with or other material information with respect to any regulatory bodies which regulate a material portion of the Company's business. Limit response to the last five years unless an older document has a continuing impact on the Company.7. Copies of all other studies, surveys, memoranda or other data on regulatory compliance including: spill control, environmental clean-up or environmental preventive or remedial matters, employee safety compliance, import or export licenses, common carrier licenses, problems, potential violations, expenditures, etc.8. State whether any consent is necessary from any governmental authority to embark upon or consummate the proposed transaction.9. Schedule of any significant U.S. import or export restrictions that relate to the Company's operations.10. List of any export, import or customs permits or authorizations, certificates, registrations, concessions, exemptions, etc., that are required in order for the Company to conduct its business and copies of all approvals, etc. granted to the Company that are currently in effect or pending renewal.11. Any correspondence with or complaints from third parties relating to the marketing, sales or promotion practices of the Company.G. Environmental Matters1. A list of facilities or other properties currently or formerly owned, leased, or operated by the Company and its predecessors, if any.2. Reports of environmental audits or site assessments in the possession of the Company, including any Phase I or Phase II assessments or asbestos surveys, relating to any such facilities or properties.3. Copies of any inspection reports prepared by any governmental agency or insurance carrier in connection with environmental or workplace safety and health regulations relating to any such facilities or properties.4. Copies of all environmental and workplace safety and health notices of violations, complaints, consent decrees, and other documents indicating noncompliance with environmental or workplace safety and health laws or regulations, received by the Company from local, state, or federal governmental authorities. If available, include documentation indicating how such situations were resolved.5. Copies of any private party complaints, claims, lawsuits or other documents relating to potential environmental liability of the Company to private parties.6. Listing of underground storage tanks currently or previously present at the properties and facilities listed in response to Item 1 above, copies of permits, licenses or registrations relating to such tanks, and documentation of underground storage tank removals and any associated remediation work.7. Descriptions of any release of hazardous substances or petroleum known by the Company to have occurred at the properties and facilities listed in response to Item 1, if such release has not otherwise been described in the documents provided in response to Items 1-6 above.8. Copies of any information requests, PRP notices, "106 orders," or other notices received by the Company pursuant to CERCLA or similar state or foreign laws relating to liability for hazardous substance releases at off-site facilities.9. Copies of any notices or requests described in Item 8 above, relating to potential liability for hazardous substance releases at any properties or facilities described in response to Item 1.10. Copies of material correspondence or other documents (including any relating to the Company's share of liability) with respect to any matters identified in response to Items 8 and 9.11. Copies of any written analyses conducted by the Company or an outside consultant relating to future environmental activities (i.e., upgrades to control equipment, improvements in waste disposal practices, materials substitution) for which expenditure of funds greater than $10,000 is either certain or reasonably anticipated within the next five years and an estimate of the costs associated with such activities.12. Description of the workplace safety and health programs currently in place for the Company's business, with particular emphasis on chemical handling practices.H. Litigation1. List of all litigation, arbitration and governmental proceedings relating to the Company to which the Company or any of its directors, officers or employees is or has been a party, or which is threatened against any of them, indicating the name of the court, agency or other body before whom pending, date instituted, amount involved, insurance coverage and current status. Also describe any similar matters which were material to the Company and which were adjudicated or settled in the last ten years.2. Information as to any past or present governmental investigation of or proceeding involving the Company or the Company's directors, officers or employees.3. Copies of all attorneys' responses to audit inquiries.4. Copies of any consent decrees, orders (including applicable injunctions) or similar documents to which the Company is a party, and a brief description of the circumstances surrounding such document.5. Copies of all letters of counsel to independent public accountants concerning pending or threatened litigation.6. Any reports or correspondence related to the infringement by the Company or a third party of intellectual property rights.I. Significant Contracts and Commitments1. Contracts relating to any completed (during the past 10 years) or proposed reorganization, acquisition, merger, or purchase or sale of substantial assets (including all agreements relating to the sale, proposed acquisition or disposition of any and all divisions, subsidiaries or businesses) of or with respect to the Company.2. All joint venture and partnership agreements to which the Company is a party.3. All material agreements encumbering real or personal property owned by the Company including mortgages, pledges, security agreements or financing statements.4. Copies of all real property leases relating to the Company (whether the Company is lessor or lessee), and all leasehold title insurance policies (if any).5. Copies of all leases of personal property and fixtures relating to the Company (whether the Company is lessor or lessee), including, without limitation, all equipment rental agreements.6. Guarantees or similar commitments by or on behalf of the Company, other than endorsements for collection in the ordinary course and consistent with past practice.7. Indemnification contracts or arrangements insuring or indemnifying any director, officer, employee or agent against any liability incurred in such capacity.8. Loan agreements, notes, industrial revenue bonds, compensating balance arrangements, lines of credit, lease financing arrangements, installment purchases, etc. relating to the Company or its assets and copies of any security interests or other liens securing such obligations.9. No-default certificates and similar documents delivered to lenders for the last five (or shorter period, if applicable) years evidencing compliance with financing agreements.10. Documentation used internally for the last five years (or shorter time period, if applicable) to monitor compliance with financial covenants contained in financing agreements.11. Any correspondence or documentation for the last five years (or shorter period, if applicable) relating to any defaults or potential defaults under financing agreements.12. Contracts involving cooperation with other companies or restricting competition.13. Contracts relating to other material business relationships, including:a. any current service, operation or maintenance contracts;b. any current contracts with customers;c. any current contracts for the purchase of fixed assets; andd. any franchise, distributor or agency contracts.14. Without duplicating Section D above or the intellectual property due diligence schedule hereto, contracts involving licensing, know-how or technical assistance arrangements including contracts relating to any patent, trademark, service mark and copyright registrations or other proprietary rights used by the Company and any other agreement under which royalties are to be paid or received.15. Description of any circumstances under which the Company may be required to repurchase or repossess assets or properties previously sold.16. Data processing agreements relating to the Company.17. Copies of any contract by which any broker or finder is entitled to a fee for facilitating the proposed transaction or any other transactions involving the Company or its properties or assets.18. Management, service or support agreements relating to the Company, or any power of attorney with respect to any material assets or aspects of the Company.19. List of significant vendor and service providers (if any) who, for whatever reason, expressly decline to do business with the Company.20. Samples of all forms, including purchase orders, invoices, supply agreements, etc.21. Any agreements or arrangements relating to any other transactions between the Company and any director, officer, stockholder or affiliate of the Company (collectively, "Related Persons"), including but not limited to:a. Contracts or understandings between the Company and any Related Person regarding the sharing of assets, liabilities, services, employee benefits, insurance, data processing, third-party consulting, professional services or intellectual property.b. Contracts or understandings between Related Persons and third parties who supply inventory or services through Related Persons to the Company.c. Contracts or understandings between the Company and any Related Person that contemplate favorable pricing or terms to such parties.d. Contracts or understandings between the Company and any Related Person regarding the use of hardware or software.e. Contracts or understandings regarding the maintenance of equipment of any Related Person that is either sold, rented, leased or used by the Company.f. Description of the percentage of business done by the Company with Related Persons.g. Covenants not to compete and confidentiality agreements between the Company and a Related Person.h. List of all accounts receivable, loans and other obligations owing to or by the Company from or to a Related Person, together with any agreements relating thereto.22. Copies of all insurance and indemnity policies and coverages carried by the Company including policies or coverages for products, properties, business risk, casualty and workers compensation. A description of any self-insurance or retro-premium plan or policy, together with the costs thereof for the last five years. A summary of all material claims for the last five years as well as aggregate claims experience data and studies.23. List of any other agreements or group of related agreements with the same party or group of affiliated parties continuing over a period of more than six months from the date or dates thereof, not terminable by the Company on 30 days' notice.24. Copies of all supply agreements relating to the Company and a description of any supply arrangements.25. Copies of all contracts relating to marketing and advertising.26. Copies of all construction agreements and performance guarantees.27. Copies of all secrecy, confidentiality and nondisclosure agreements.28. Copies of all agreements related to the development or acquisition of technology.29. Copies of all agreements outside the ordinary course of business.30. Copies of all warranties offered by the Company with respect to its product or services.31. List of all major contracts or understandings not otherwise previously disclosed under this section, indicating the material terms and parties.32. For any contract listed in this Section I, state whether any party is in default or claimed to be in default.33. For any contract listed in this Section I, state whether the contract requires the consent of any person to assign such contract or collaterally assign such contract to any lender.NOTE: Remember to include all amendments, schedules, exhibits and side letters. Also include brief description of any oral contract listed in this Section I.J. Employees, Benefits and Contracts1. Copies of the Company's employee benefit plans as most recently amended, including all pension, profit sharing, thrift, stock bonus, ESOPs, health and welfare plans (including retiree health), bonus, stock option plans, direct or deferred compensation plans and severance plans, together with the following documents:a. all applicable trust agreements for the foregoing plans;b. copies of all IRS determination letters for the foregoing qualified plans;c. latest IRS forms for the foregoing qualified plans, including all annual reports, schedules and attachments;d. latest copies of all summary plan descriptions, including modifications, for the foregoing plans;e. latest actuarial evaluations with respect to the foregoing defined benefit plans; andf. schedule of fund assets and unfunded liabilities under applicable plans.2. Copies of all employment contracts, consulting agreements, severance agreements, independent contractor agreements, non-disclosure agreements and non-compete agreements relating to any employees of the Company.3. Copies of any collective bargaining agreements and related plans and trusts relating to the Company (if any). Description of labor disputes relating to the Company within the last three years. List of current organizational efforts and projected schedule of future collective bargaining negotiations (if any).4. Copies of all employee handbooks and policy manuals (including affirmative action plans).5. Copies of all OSHA examinations, reports or complaints.6. The results of any formal employee surveys.K. Tax Matters1. Copies of returns for the three prior closed tax years and all open tax years for the Company (including all federal and state consolidated returns) together with a work paper therefor wherein each item is detailed and documented that reconciles net income as specified in the applicable financial statement with taxable income for the related period.2. Audit and revenue agents reports for the Company; audit adjustments proposed by the Internal Revenue Service for any audited tax year of the Company or by any other taxing authority; or protests filed by the Company.3. Settlement documents and correspondence for last six years involving the Company.4. Agreements waiving statute of limitations or extending time involving the Company.5. Description of accrued federal, state and local withholding taxes and FICA for the Company.6. List of all state, local and foreign jurisdictions in which the Company pays taxes or collects sales taxes from its retail customers (specifying which taxes are paid or collected in each jurisdiction).L. Miscellaneous1. Information regarding any material contingent liabilities and material unasserted claims and information regarding any asserted or unasserted violation of any employee safety and environmental laws and any asserted or unasserted pollution clean-up liability.2. List of the ten largest customers and suppliers for each product or service of the Company.3. List of major competitors for each business segment or product line.4. Any plan or arrangement filed or confirmed under the federal bankruptcy laws, if any.5. A list of all officers, directors and stockholders of the Company.6. All annual and interim reports to stockholders and any other communications with securityholders.7. Description of principal banking and credit relationships (excluding payroll matters), including the names of each bank or other financial institution, the nature, limit and current status of any outstanding indebtedness, loan or credit commitment and other financing arrangements.8. Summary and description of all product, property, business risk, employee health, group life and key-man insurance.9. Copies of any UCC or other lien, judgment or suit searches or filings related to the Company in relevant states conducted in the past three years.10. Copies of all filings with the Securities and Exchange Commission, state blue sky authorities or foreign security regulators or exchanges.11. All other information material to the financial condition, businesses, assets, prospects or commercial relations of the Company.

The (Un)Modern Markets“[The] markets look a lot less efficient from the banks of the Hudson than they do the banks of the Charles.” — Fischer BlackWhere have all the traders gone? Before and after photos of what was once the world’s largest trading floor.FinTech: From Niche to MainstreamIt was not all that long ago when FinTech was considered a niche investment focus among venture capitalists. It seems obvious now, but at the start of this decade the idea that technology had the potential to upend the competitive balance in financial services was one that few shared. “Too many regulatory barriers are in the way; too much capital is required; and the engineering necessary is too complicated” were among the many refrains heard from the naysayers.Sentiments have dramatically changed since. From 2012–2016, over $41 billion (source: DataFox Inc.) has been invested in FinTech startups by the venture community alone, with the majority of that amount backing payments, blockchain, tech-enabled lending and wealth management (e.g., robo-advising) companies.As consumers, we now take for granted the ability to handle nearly all of our personal banking and financial management needs on a hand-held device and to do so in real time. Few doubt that individuals and small merchants that are often overlooked by traditional financial institutions can in fact be better served by new entrants that use alternative acquisition, distribution, and underwriting technologies. The net result of all of this activity: a score of iconic companies — and tens of billions of dollars in value for their shareholders — have been created in the first decade of FinTech.Not including the startups that have IPO’d in recent years, there are at present 22 FinTech companies that have achieved so-called “unicorn” status (i.e., billion dollar plus valuations), with the largest being Ant Financial, Alibaba’s FinTech holding company. (As an aside, it was only a year ago, Ant Financial raised a $4.5 billion growth equity round that valued the company at $60 billion, which is within shouting distance of American Express’s market capitalization!) We anticipate that others will soon join the fold.FinTech 2.0: The Great ContestAs impressive as the gains have been, my partners and I at Green Visor Capital believe that the largest opportunities for change in the financial services industry have yet to be effected. As the second decade of the FinTech revolution unfolds (my partners refer to the current era as “FinTech 2.0.”), our takeaway from years of observation is that the founders of this generation have ambitions that are even more audacious than those of their predecessors. We know more than a few entrepreneurs that want to attack trillion dollar market opportunities. Yes, you read that correctly: trillion dollar market opportunities.An all out contest is now underway that pits traditional financial institutions against a disparate group of insurgents that comprise not just a new set of FinTech startups, but some of the best capitalized technology companies from around the globe. In addition, regulators in New York, Washington DC, Singapore, Hong Kong, Tokyo, Beijing, Sydney and London (just to name a few), have taken a keen interest in FinTech and are actively shaping the direction that innovation takes in the future. Regulatory scrutiny of the startup community, in other words, is intensifying — and so is the trend of automation. Jobs within traditional financial institutions — even high paying white-collar ones that are often the exclusive domain of Ivy League graduates — are already being replaced by machines. On this last point, JP Morgan invested $3.0 billion in 2016 alone across its various innovation efforts (source: JPM annual report), including AI and machine learning. One promising result, the Bank now has a platform that can analyze tens of thousands of legal documents in seconds (source: Bloomberg News).The stakes in this great contest could not be higher. And while it may ultimately prove harder for FinTech startups to scale to competitive relevance in the FinTech 2.0 era, make no mistake — we steadfastly believe that hundreds of billions of dollars of value are up for grabs in the coming decades in this contest between the incumbents and the upstarts. There are, in other words, ample incentives for current FinTech entrepreneurs to pursue their ambitions even in the face of stiffening competition. Some founders will still find success in building stand-alone companies that look to disrupt the status quo. More likely in our view, however, is that the winners of FinTech 2.0 will comprise a group of entrepreneurs that actively pursue collaboration between their startup companies and incumbent financial institutions from the outset (e.g., Square, Stripe, and PayPal).A Sampling of What’s Next in FinTech: Modernizing MarketsWith the above as added context, it’s time to discuss what’s next — or at least possible — in FinTech. One of the largest opportunities yet to be mined in FinTech, we submit, lies at the heart of the capital markets, specifically in how the markets actually operate. As Fisher Black’s quote above underscores, the “efficiency” of the capital markets is a notion that is more widely accepted among academics than it is among markets professionals.Trillions of dollars of value flow through the capital markets — “capital markets” being broadly defined as the issuing, buying, and selling of fixed income securities, currencies, commodities, derivatives and equities — every single day. Even very small changes in the operating efficiency and liquidity of the capital markets, therefore, translates into billions in potential value creation (or destruction depending on your point of view).The purveyors of trading services (e.g., exchanges, broker dealers, market makers, data, software and hardware providers) note that substantial advances in the technology deployed have made the capital markets more connected, automated, and by many accounts more efficient — that is, more liquid, more transparent and cheaper to transact. Broker-dealers, among others, also note that they are better able to track not only the trading behavior of their clients, but also how quickly news is absorbed into trade order flows for the benefit of all, including regulators.But the question we ask is the following: are today’s capital markets truly more efficient and thus are market participants better served? As the famed author Michael Lewis contends in his best-seller “Flash Boys: A Wall Street Revolt” there is much more to this debate than meets the eye. Lewis’s contention — and we agree — is that the capital markets are un-level playing fields. While the reader may not agree with this contention, there is no doubt that today’s capital markets are unrecognizable as compared to what they were just a decade or two ago.Simply put, our team’s thesis is that while markets have become electronified, they are not yet “intelligent” — and that is where a major opportunity lies to create value through meaningful innovation.The Emphasis on Speed, Hidden Tolls, and the Fragmentation of LiquidityWhile it is true that the process through which buyer and seller is matched is now automated — theoretically enabling more volume to be handled in any given trading session — the underlying algorithm used to cross trades is in fact a crude one (i.e., price-time prioritization) that has been in use for hundreds of years. Equally important, the trading of US equities, as just one example, has now become fragmented. Non-capital markets professionals might be surprised to learn that nearly 68% of trading in equities of companies that are listed on the New York Stock Exchange actually happens away from the exchange itself (source: ICE Annual Report 2016). In fact, the trading of US equities now happens at no fewer than 30 different trading venues scattered throughout the country. It is chiefly because of these factors that nearly all institutional market participants prize a single, overarching objective: the desire to reduce latency. That is, the amount of time — usually measured in milliseconds — between trade order entry and trade order execution.Given the paramount importance of speed, a classic arms race for ever faster trade execution (i.e., latency reduction) has gone unchecked for two plus decades. This arms race costs market participants in myriad ways. The direct costs alone are staggering: tens of billions of dollars are spent annually on technology to reduce latency. By some estimates, $30 billion per year is spent by institutional market participants just on high speed connectivity, namely fiber, microwave and laser communications infrastructure. The cost of hosting servers at the exchanges themselves cost billions more in annual expenditures. (See the Epilogue below.)The implications of this trend cannot be overstated. As noted above, we believe that the playing field is far from a level one. To illustrate this point, imagine a race where some entrants walk, while others use Formula One cars to reach the finish line. If you take the analogy a step further, imagine also that there are no penalties to be incurred for using the latter in this race, which — not surprisingly — leads to adverse consequences for all market participants.It should thus come as no surprise that algorithmic / program trading dominates market activity today. In fact, institutional market participants have little choice but to deepen their use of, and dependence on, automated execution strategies to keep pace with low latency trading outfits. Mutual fund managers and pension funds, among others, all use complex trading algorithms, in an attempt to mask their underlying trading intent to avoid being vulnerable to traders that have the advantages that come with speed. But the flanks of traditional money managers (or retail investors) are not fully protected.Just imagine, for example, that a mutual fund manager is sitting on a billion dollar position of a stock that he or she wants to exit. The fund manager’s intent to sell the entire position in question is carefully guarded from the market so as not to create downward pressure on the stock’s price before execution of the trade. In an abundance of caution, the fund managers will often break up the sell order into a number of smaller ones, then enter them into different trading venues, and perhaps even hide the sell order among a basket of other trades that involve other securities.However, given the sophistication of trading algorithms now in play, the true intent to fully sell the billion dollar holding will nonetheless be inferred by the most sophisticated market participants and done so in short order. And because numerous firms now employ the lowest latency trading infrastructure, others can race ahead of the money manager to execute their trades first — trades that of course run counter to the fund manager’s intent. As a result, pricing for the stock in question moves against the fund manager by an amount that is far greater than expected, introducing millions of dollars of lost value realized upon the completion of the trade order. It is worth pausing a moment here to underscore how serious a problem this is. In theory, with better connected markets there should be greater liquidity — not less. Yet, nearly all market participants now find themselves playing an automated game of trading small-sized order lots in an attempt to avoid telegraphing intent in the building and disposal of large positions. Perversely, a negative feedback loop now exists in the capital markets as currently configured, which exacerbates the dependence on algorithmic / program trading and the need to continue to invest in very expensive low latency infrastructure.Electronification v. Intelligent DesignThe way the markets operate today, we contend, is the byproduct of a relentless competition driven more by price competition, rather than product innovation. The arms race to shave off milliseconds in trade execution has been going on for nearly two decades and is seemingly one with no end in sight. What is most shocking to us, however, is the fact that even among very seasoned markets professionals, the risks related to high frequency, algorithmic latency trading is not well understood.While fractions of pennies per share may be charged to an institutional investor for executing a trade order by the broker-dealer or market-maker, the full cost of the lack of innovation remains hidden. That is, how much did the market price move against one’s trade intent — the so-called “market impact” that typically accompanies trading a large-sized lot, not to mention the large expense incurred to maintain low latency trading infrastructure.On the former point, there are now trading venues that are “inverted” where investors — instead of paying commissions to trade at the venue, actually receive them as an incentive to execute their orders there. Sure a money manager may have gotten fractions of a cent per share to execute an order at said venues, but he or she probably gave up significantly more by doing so, which is reflected in the ultimate price at which the shares actually traded hands as compared to a traditional venue. In our view this is madness.In conducting our research, we were surprised that many financial services professionals were unaware of the size and scope of the problems inherent in today’s capital markets, problems which are seen to varying degrees across all asset classes and geographies. To summarize some of the issues that we see:Antiquated auction process — i.e., simple price-time matching methodology used by today’s exchanges is centuries old. Now automated: yes. Intelligent: no.Warped incentives — growth in revenues for exchanges are driven by product offerings that do not enhance market efficiency or transparency. In fact, some of their efforts come at the expense of traditional investors (e.g., retail, mutual, pension and sovereign wealth funds). For example, the reader may be shocked to learn that the exchanges actually charge princely sums for proximity based hosting of servers. If you’re a market maker and you want the fastest connectivity, you need to co-locate your servers in the same facility as the exchanges.Information leakage is the norm — masking buyer / seller intent is nearly impossible in traditional markets given the pervasiveness and sophistication of programmatic trading. This in turn leaves ordinary investors vulnerable to arbitrage.Speed in executing orders is king — maintaining low latency trading infrastructure is critical for the survival of traditional market participants, but increasingly expensive to maintain with diminishing marginal benefits for all players.Opportunistic behavior — market participants with the greatest speed advantage often use it to siphon a significant quantum of value from ordinary investors (i.e., the very definition of “rent seeking”).Fragmentation of liquidity — nearly every single market participant wants to be able to trade in larger sized lots, but larger investors typically struggle to source liquidity. Yes, there’s historically low volatility today, but that is symptom not a cause of what ails today’s markets.The bottom line is this: because of the issues noted above, today’s markets are suboptimal in facilitating price discovery. Billions of dollars are transferred annually from ordinary investors to high frequency trading (“HFT”) outfits. Billions of dollars are also spent every year on high speed trading (i.e., low latency) infrastructure as “insurance” to minimize the transfer of wealth to HFTs. “Speed bumps” offered by new and traditional exchanges, in our view, are simply ineffective in dealing with the issues at hand.The Use of Artificial Intelligence to Power MarketsIt is not every day that we encounter a team that has had a genuine breakthrough with their technology, but OneChronos is one of them. It is a FinTech startup that has devised truly differentiated IP, and with it created an entirely new paradigm for how the capital markets of the future should operate. Once launched, OneChronos will be the world’s first trading venue that will be fully powered by artificial intelligence (“AI”). Their underlying approach will nullify the advantages of speed, thus freeing market participants from having to invest in low latency infrastructure for insurance purposes. OneChronos uses a highly sophisticated approach to matching orders that is light years beyond the limit order book. They are pioneering the use of so-called “combinatorial auctions” that can match buyer and seller with far greater frequency and precision (i.e., micro vs. milliseconds) than traditional exchanges. As a result, OneChronos can find matches between buyers and sellers that conventional markets simply cannot, including the trading of entire portfolios, unlocking stores of liquidity and materially reducing transaction costs.OneChronos is currently in the process of registering as an Alternative Trading System (“ATS”), which is also known as a “Dark Pool.” Unlike other exchanges, OneChronos also intends to adhere to a customer first pledge. That is, the company will act only as a trading venue, never serve as principal, nor sell data sets that can be used to the detriment of its customers. OneChronos will begin operations as a trading venue for US equities, but hope to add other geographies and asset classes soon thereafter.We think the time now is right to be backing a company like OneChronos for a number of reasons. First, the power and cost of the compute power necessary to enable combinatorial auctions at the scale needed is accessible by the startup community for the first time. Previously, only large enterprises and state actors could afford the necessary infrastructure costs. Second, the underlying math behind continuous combinatorial auctions, while certainly not new, has only recently been made usable in the context of the capital markets. And because promoting change is hard within the incumbents, these breakthroughs have yet to even be identified, let alone implemented by the exchanges. Third, only a handful of individuals have the necessary expertise in (a) combinatorial auctions and (b) first-hand and in-depth knowledge of trading securities; the founders of OneChronos are in very elite company. Last but not least, there is a multi-billion dollar revenue opportunity for upstarts like OneChronos. If this team can quantifiably demonstrate better trade execution — they will win market share, and because they are technology driven (and personnel-light) they don’t need to handle much volume to be profitable.ConclusionWe have little doubt that some skeptics remain. We recently heard one doubter note: “JP Morgan and other banks are reporting record profits where is the wholesale disruption from FinTech?” We are untroubled by the critics and their commentary because divergent opinions make better markets.To summarize our view: the winners of FinTech 2.0 will make plain that a fair number of financial service providers are nothing other than gatekeepers who rely in large part on nothing more than information asymmetry to collect tolls from the hapless travelers that must pass through their roads. The demise of gatekeepers will continue.About the AuthorSimon Yoo is a venture capitalist, and is the Founder and Managing Partner of Green Visor Capital. Based in San Francisco, he and his colleagues are on a mission to help re-invent the financial services industry for the 21st century — one startup at a time. The Green Visor team looks to back passionate entrepreneurs, in the US and abroad, that challenge the status quo — to better promote inclusion, transparency and efficiency — through the innovative use of technology. Simon received his MBA from Cornell University and BA from Kenyon College, where he also served as a Trustee.

As I dug around and did some research, it looks like my previous notion that few venture funds outperform the S&P 500 was incorrect.It appears based on recent research (linked below) that studies the most accurate, actual LP cash flow data to date (provided by Burgiss, which provides record-keeping and performance monitoring services for LPs/institutional investors), "previous VC funds...below the median for their vintage year subsequently tend to be below median and have returns below those of the public markets (S&P 500). Partnerships in the top two VC quartiles tend to stay above the median and their returns exceed those of the public markets. that GPs with previous performance in the top or second quartile, outperform the S&P 500."It seems that for LPs, investing in venture funds is like gambling on which NBA team is going to win the championship next year.4 teams account for 65% of all NBA titles. See below from NBA Championships: Summary of Winners:Just like there are "dynasties" that win over and over again in the NBA, recent research that shows venture funds show the same type of dynastic persistence, as well. In a February 2014 paper by Harris et al., "Has Persistence Persisted in Private Equity? Evidence From Buyout and Venture Capital Funds" (link: Page on unc.edu), the researchers arrive to the following conclusions:"We find that performance remains statistically and economically persistent throughout the sample period. Partnerships whose previous VC funds are below the median for their vintage year subsequently tend to be below median and have returns below those of the public markets (S&P 500). Partnerships in the top two VC quartiles tend to stay above the median and their returns exceed those of the public markets. We also fail to find a negative relation between performance and fund size. These results imply much greater stability in the venture capital industry over time. Many of the same forces that operated in the 1980s and 1990s appear to still be in effect.Our results on VC funds have two implications. First, the persistence of persistence in VC suggests that the industry rule of thumb to invest with GPs that have previously performed well and to avoid those that have not remains consistent with our results. The stronger performance persistence for VC as compared to buyout suggests that GP skills and networks for successful VC investing are harder to replicate than is true in buyout. At the same time however, VC funds with previous performance in both the top and second quartiles outperform the S&P 500. This is not consistent with the view that only very few VC funds outperform. In fact, previous funds that are above median appear to do so." Supporting data from the paper below:There seems to be this dynamic where the capital allocator is thinking, "Okay this is going to be a small portion of my entire portfolio, I am okay with losing money on it for the potential that I could really get outsized gains."But the problem is the same one that a gambler in Vegas faces: By the time I want to bet on a dynastic NBA team that is more likely to win an NBA championship for a given year, the odds will already have priced that in and my payoff won't be as big. So, I am forced to find other opportunities by betting on a team that has never won a championship, with extremely high payoffs if they do win. The efficiency of the market has priced me out, making the bet on the Boston Celtics or the San Antonio Spurs in a given year (roughly speaking) not as attractive from an asymmetric risk-reward standpoint. Isn't that what the gambler is looking for with this stash of discretionary capital that's likely a small % of his net worth?In the same vein, the analogy for an LP investor would be that for this tiny % of the portfolio, the LP investor would like to receive some exposure to massively skewed upside optionality. That's what the investor wants. However, just like the gambler that's priced out of betting on the Boston Celtics or the San Antonio Spurs for a given year due to risk capital that beat him to the punch by pricing in the actual odds, other pockets of capital have likely already flowed to the coffers of the dynastic GPs of the VC world, closing their funds off to the majority of LP investors. So most LPs go and look for other opportunities, no matter how unattractive their odds may be. For that's the purpose of that capital - it's speculative for most.That's the end of my post.....But, for the data nerds, who would like to see a summary re: the Burgiss data from LPs, and overall VC returns as a whole, please see the below.I summarize and cite the findings of a research paper titled, "Private Equity Performance: What Do We Know?" which is the first research paper of its kind to use research-quality, ACTUAL cash flow data of LPs, provided by Burgiss, a company that provides record-keeping and performance monitoring services for institutional investors, LPs.The paper states: "Since 2000, the average VC fund has underperformed public markets by about 5% over the life of the fund. Although disappointing, this under-performance is less dramatic than the more commonly quoted absolute return measures."Please read the primary source and make your own interpretations, as these are my own cursory summaries and selected citations."Private Equity Performance: What Do We Know?" by Robert S. Harris, Tim Jenkinson and Steven N. Kaplan (July 2013)Link: Page on chicagobooth.edu(Note: The above paper also mentions an interesting piece from the Kaufmann Foundation in 2012: Page on kauffman.org)"Private Equity Performance: What Do We Know?" by Robert S. Harris, Tim Jenkinson and Steven N. Kaplan (July 2013)Working backwards, I start with a summary of the conclusion:Conclusion:A: "Our research highlights the importance of high quality data for understanding private equity and the returns it provides to investors. Some of the existing papers in the academic literature have relied upon data whose reliability has recently been questioned. Most previously published papers also have focused on funds raised up until the mid- or late-1990s. The enormous growth in investor allocations to private equity funds since the late 1990s has created a need for a re-evaluation of private equity performance. This paper is the first to take advantage of a new research-quality cash flow data set from Burgiss, using data as of March 2011. We believe the results in our paper have several implications...."B: "VC funds outperformed public markets substantially until the late 1990s, but have underperformed since. Extant research focused on the earlier vintage years and inevitably obtained more positive results. Since 2000, the average VC fund has underperformed public markets by about 5% over the life of the fund. Although disappointing, this under-performance is less dramatic than the more commonly quoted absolute return measures. Again, the qualitative conclusions do not appear sensitive to assumptions about systematic risk."C: "...[V]intage year performance for buyout and VC funds decreases with the amount of aggregate capital committed to the relevant asset class, particularly for absolute performance, but also for performance relative to public markets. This suggests that a contrarian investment strategy would have been successful in the past in these asset classes. The magnitudes of these relations have been greater for VC funds. Why these patterns have persisted is something of a puzzle and an interesting topic for future research."D: "[W]ithin a given vintage year, PMEs [public market equivalent, i.e. how much a PE/VC fund investor actually earned net of fees to what the investor would have earned in an equivalent investment in the public market] are reliably related to the more generally available absolute performance measures – IRRs and investment multiples. For both buyout and VC funds, IRRs and investment multiples explain at least 90% of the variation of PMEs in most vintage years, with investment multiples explaining substantially more of the variation than do IRRs. As a result, researchers and practitioners can use our models to estimate PMEs without having the underlying fund cash flows.E: "...[T]he Burgiss, CA and Preqin datasets yield qualitatively and quantitatively similar performance results. There is little reason to believe that the Burgiss and Preqin datasets, in particular, suffer from performance selection biases in the same direction. Accordingly, we think this suggests that the three datasets are unbiased and, therefore, suitable for academic research and practitioner use. At the same time, consistent with Stucke (2011), we find that performance, particularly for buyout funds, is markedly lower in the VE data. This confirms that academic research and practitioners should be cautious in relying on VE data."F: "Finally, although it is natural to benchmark private equity returns against public markets, investing in a portfolio of private equity funds across vintage years inevitably involves uncertainties and potential costs related to the long-term commitment of capital, uncertainty of cash flows and the liquidity of holdings that differ from those in public markets. While the average out-performance of private equity we find is large, further research is required to calibrate the extent of the premia investors require to bear these risks."Summary of the paper from beginning to end:"We study the performance of nearly 1400 U.S. buyout and venture capital funds using a new dataset from Burgiss. We find better buyout fund performance than has previously been documented – performance consistently has exceeded that of public markets. Outperformance versus the S&P 500 averages 20% to 27% over a fund’s life and more than 3% annually. Venture capital funds outperformed public equities in the 1990s, but underperformed in the 2000s. Our conclusions are robust to various indices and risk controls. Performance in Cambridge Associates and Preqin is qualitatively similar to that in Burgiss, but is lower in Thomson Venture Economics.""...[T]he historical performance of private equity (PE) remains uncertain, if not controversial. The uncertainty has been driven by the uneven disclosure of private equity returns and questions about the quality of data available for research. While several commercial enterprises collect performance data, they do not obtain information for all funds; they often do not disclose, or even collect, fund cash flows; and the source of the data is sometimes obscure, resulting in concerns about biases in the samples. Furthermore, some data are only periodically made available to academic researchers."This paper is perhaps the first to "use a new research-quality data set of private equity fund-level cash flows from Burgiss. We refer to private equity as the asset class that includes buyout funds and venture capital (VC) funds. We analyze the two types of funds separately. The data set has a number of attractive features that we describe in detail later. A key attribute is that the data are derived entirely from institutional investors (the limited partners or LPs) for whom Burgiss’ systems provide record-keeping and performance monitoring services. This feature results in detailed, verified and cross-checked investment histories for nearly 1400 private equity funds derived from the holdings of over 200 institutional investors.""...Burgiss’ detailed data for nearly 1400 U.S. funds. Table I reports the distribution of our sample by vintage year, and compares our coverage with that of other commercial and proprietary databases.8 We distinguish between buyout funds and venture capital funds, and focus on funds formed between 1984 (the first year with meaningful numbers of funds in the datasets) and 2008. Our sample is comprised of 598 buyout funds and 775 VC funds."Data "...comes from over 200 investment programs that represent over $1 trillion in committed capital. The LPs comprise a wide array of institutions; over two-thirds have private equity commitments in excess of $100 million. Of these, about 60% are pension funds (a mix of public and corporate) and over 20% are endowments or foundations." Other research at that time had not been based on this broad of a range of investors."Average venture capital fund returns in the U.S., on the other hand, outperformed public equities in the 1990s, but have underperformed public equities in the most recent decade.""We also examine whether fund performance is linked to capital – both the aggregate amount of capital flowing into private equity and to the capital committed to a particular fund. We find that both absolute performance and performance relative to public markets are negatively related to aggregate capital commitments for both buyout and VC funds." People are chasing!"For VC funds, we find that funds in the bottom quartile of fund size underperform. Controlling for vintage year, top size quartile funds have the best performance although they do not differ significantly from funds in the 2nd and 3rd size quartiles."775 VC funds:"The proportion of invested capital that has been realized in the Burgiss data is presented in Table II for the median fund in each vintage year. For buyout funds unrealized investments never exceed 3% of invested capital for the median fund in pre-1999 vintages and are only 10% of invested capital for the median 1999 fund. The pre-2000 vintages, therefore, represent largely realized funds. The proportion of realized investments naturally falls for the later vintages, to less than 20% for vintages after 2003. Similar patterns apply to the VC funds. The residual value (NAV) assumptions, therefore, become increasingly important for more recent vintages.""...[W]e benefit from two differences not available to the authors of the earlier papers. First, the Burgiss figures for both distributions and NAVs are up-to-date because the data are sourced directly from LPs, subject to extensive cross-checking, and part of the Burgiss systems that are used for the LPs’ monitoring and record-keeping. Second, since the end of 2008, the Financial Accounting Standards Board (FASB) has required private equity firms to value their assets at fair value every quarter, rather than permitting them to value the assets at cost until an explicit valuation change. This likely has had the effect of making estimated unrealized values closer to true market values than in the past, particularly for buyout funds...Furthermore, recent evidence from Brown et al. (2013) and Jenkinson et al. (2013) finds that, on average, residual values have historically been conservative estimates of the ultimate cash returned to investors. The estimates in this paper for funds that are not fully realized, therefore, may be conservative.""Table II shows the average IRRs and investment multiples derived from the Burgiss data, separately for buyout funds and venture capital funds. The mean, median and the weighted average (where the weights are capital commitments) figures are shown for each vintage year, as well as averages for the 1980s, 1990s and 2000s. There is considerable variation in average performance across vintage years, with cycles that appear to lead economic booms and busts. This is due to the convention of classifying funds by vintage year, the year of the fund’s first investment in a company. Most funds have a 5 or 6 year investment period, and so deploy most of their capital in the few years after their designated vintage year......For VC funds, the pattern of performance over time is more variable. IRRs and investment multiples were extremely high for vintage years in the mid-1990s. For instance, the (weighted average) IRR for 1996 vintage funds was around 76%, and the investment multiple was over 6. However, post-1998 and after the demise of the dot-com boom, the fortunes of VC investors reversed. The vintages with the largest amounts of VC fundraising, 1999 and 2000, have returned negative IRRs and investment multiples well below 1. The generally lower average returns from VC have persisted in the 2000s."Table II:"Comparisons with public markets can be performed in various ways. We focus on the public market equivalent from Kaplan and Schoar (2005), which compares an investment in a private equity fund to an equivalently timed investment in the relevant public market. The PME calculation discounts (or invests) all cash distributions and residual value to the fund at the publicmarket total return and divides the resulting value by the value of all cash contributions discounted (or invested) at the public market total return. The PME can be viewed as a market-adjusted multiple of invested capital (net of fees). A PME of 1.20, for example, implies that at the end of the fund’s life, investors ended up with 20% more than they would have if they had invested in the public markets." S&P 500 is used to proxy the public market."The performance of venture capital contrasts considerably with that of buyouts. Panel B of Table III shows that the PMEs for early venture capital vintages were less than 1.0, but then increased sharply after 1986. Weighted average PMEs exceed 1.0 for the 1987 to 1998 vintage years, with the 1996 vintage having a weighted-average PME above 4.0. From 1999 to 2008, the pattern reverses. Except for 2005, none of those vintages have a weighted average or simple average PME greater than 1.0. The 1999 to 2002 vintages are particularly low with all PMEs at, or below, 0.90. Overall, then, the results suggest that VC PMEs exceeded 1.0 for most of the 1990s by a fairly wide margin. Since 1999, they have been less than 1.0, being particularly low for 1999 to 2002 vintages. Compared to earlier research, the more negative findings for VC returns largely reflect the fact that our data includes more recent funds. As can be seen from Figure 1, the returns obtained from the Burgiss data have a similartrend to those found by Kaplan and Schoar (2005), although the PMEs are somewhat higher. However, the inclusion of more recent vintages reverses the previous finding that VC generally out-performed public markets: this was true up to 1998, but afterwards the performance has notkept pace. Our results are consistent with the findings of the Kaufmann Foundation for their investments in VC (see Kauffman Foundation (2012))."I have posted a link to the Kaufmann Foundation 2012 research here: Page on kauffman.orgTable III:"For venture funds (Panel B of Table IV), the patterns identified using the S&P 500 persist across the different indices. Although average vintage-year PMEs exceed 1.0 across all indices, they are below 1.0 in the 2000s and well above 1.0 in the 1990s. Sample average PMEs are similar for the different indices with the lowest using the Nasdaq (1.12) and the highest using the Russell 2000 Growth index (1.25). Similarly, the average vintage year PMEs and sample average PMEs using the four Fama-French size deciles are qualitatively identical to those using the Russell 2000...While the overall sample average performance of VC funds is greater than 1.0, the sample median is below 1.0. For VC funds, it is less clear whether the median or mean is the appropriate measure for the typical VC limited partner. Harris et al. (2013) find that VC fund persistence is equally strong pre- and post-2000, suggesting that it is possible to predict which funds will outperform based on previous fund performance and that the typical VC limited partner may not be able to access the average fund. Alternatively, Sensoy et al. (2013) do not find that any particular type of limited partner (including endowments) is able to access or choose better performing venture capital funds post-1998, suggesting that the mean is a more appropriate measure of fund performance....Overall, then, Table IV shows that average PMEs across our sample are robust to a range of public market benchmarks. Size (smaller) and value benchmarks reduce the outperformance of buyout funds somewhat, but do not eliminate it. This reinforces our conclusions about private equity performance from the prior section. In keeping with prior research and the Sorensen and Jagannathan (2013) asset pricing interpretation, we rely on PMEs using the S&P 500 for the remainder of our analysis."Table IV:Regarding the above Table IV: "For venture capital funds, we find that the average fund has a PME of 1.21, 1.10, and 1.07, respectively, assuming public market returns of 1.0, 1.5, and 2.0 times the S&P 500. The medians are closer at 0.90, 0.87 and 0.85. At the vintage year level, the results vary little in the 2000s, but average PMEs vary somewhat more – between 1.40 and 1.77 – for the 1990s vintages depending on the assumed systematic risk. Our basic conclusions are unchanged regardless ofour assumption about beta – VC funds outperformed in the 1990s and underperformed in the 2000s."Regarding fund flows: "Table V also shows a negative relation between capital commitments and performance for VC funds. The regression coefficients imply that when capital flows move from the bottom to top quartile, IRRs decline by 9% per year, multiples decline by 0.75 and PMEs decline by 0.33. These results are broadly consistent with Kaplan and Stromberg (2009) and Robinson and Sensoy (2011a) and add support to the finding that an influx of capital into VC funds is associated with lower subsequent performance." Table V:Regarding fund size: "Over time, fund sizes have, on average, increased for both buyout and VC funds. This is apparent in panel Aof Table VI where we classify funds into size quartiles by decade Buyout fund sizes have 23 increased from an average size of $390 million in the 1980s to $782 million in the 1990s to $1.4billion in the 2000s. VC fund sizes also increased from an average of $77 million to $191 million to $358 million. Similar increases have occurred over time for each fund size quartile....Although not controlling for any vintage year effects, these average returns by size quartile do not demonstrate strong correlation between fund size and performance. The only noticeable relationship is that the smallest quartile of both buyout and VC funds tend to have lower performance...When controlling for vintage years...[f]or VC funds, however, we find a strong positive relation between size and performance. Funds in the smallest two size quartiles significantly underperform funds in the 3rd and 4th size quartiles once we control for vintage year effects...Our conclusions about the effects of fund size are not sensitive to our size classifications. We find (but do not report in the table) qualitatively similar results when we classify funds by their size quartile in a particular vintage year." Table VI:Regarding relationship of PMEs (as dependent variable) with IRRs and multiples: "Columns 4 to 6 repeat the regressions for VC funds with similar findings...We also ran the regressions by vintage year, to allow the regression relationship to change over time, and find that there is not a single vintage year in which IRRs and multiples explain less than 86% of the variation in PMEs. In all but three of the thirty-two vintage year cohorts, IRRs and multiples explain at least 93% of the variation in PMEs. As with the combined regressions in Table VII, multiples typically provide greater explanatory power for PMEs than do IRRs. These results are presented in the Internet Appendix, Table IA.V...These results have two implications for understanding performance. First, the consistent findings for both buyout and VC funds suggest that multiples are more robust indicators of fund performance relative to public markets than are IRRs (controlling for vintage year). Second, each 0.10 increase in a multiple (equal to 10% of invested capital) is associated with an increase in PME of 0.071 for buyout and 0.056 for VC funds. If the funds have an effective duration of about five years and we use the estimated impact on PME, a 0.10 increase in multiple translates to roughly an additional 110 to 140 basis points per year relative to public markets." Table VII:Regarding other commercial datasets: "Panel B of Table VIII repeats our analysis for venture capital funds. The results are consistent across all four commercial datasets. VC funds outperformed public markets substantially until the late 1990s. The performance is stronger in the Burgiss data than in the others and lowest in VE. In contrast to the strong VC performance in earlier vintages, from the 1999 vintage year onwards VC funds have generally underperformed public markets in all four commercial datasets. The average vintage year PMEs are similar across all four commercial datasets." Table VIII:Conclusion:A: "Our research highlights the importance of high quality data for understanding private equity and the returns it provides to investors. Some of the existing papers in the academic literature have relied upon data whose reliability has recently been questioned. Most previously published papers also have focused on funds raised up until the mid- or late-1990s. The enormous growth in investor allocations to private equity funds since the late 1990s has created a need for a re-evaluation of private equity performance. This paper is the first to take advantage of a new research-quality cash flow data set from Burgiss, using data as of March 2011. We believe the results in our paper have several implications...."B: "VC funds outperformed public markets substantially until the late 1990s, but have underperformed since. Extant research focused on the earlier vintage years and inevitably obtained more positive results. Since 2000, the average VC fund has underperformed public markets by about 5% over the life of the fund. Although disappointing, this under-performance is less dramatic than the more commonly quoted absolute return measures. Again, the qualitative conclusions do not appear sensitive to assumptions about systematic risk."C: "...[V]intage year performance for buyout and VC funds decreases with the amount of aggregate capital committed to the relevant asset class, particularly for absolute performance, but also for performance relative to public markets. This suggests that a contrarian investment strategy would have been successful in the past in these asset classes. The magnitudes of these relations have been greater for VC funds. Why these patterns have persisted is something of a puzzle and an interesting topic for future research."D: "[W]ithin a given vintage year, PMEs are reliably related to the more generally available absolute performance measures – IRRs and investment multiples. For both buyout and VC funds, IRRs and investment multiples explain at least 90% of the variation of PMEs in most vintage years, with investment multiples explaining substantially more of the variation than do IRRs. As a result, researchers and practitioners can use our models to estimate PMEs without having the underlying fund cash flows.E: "...[T]he Burgiss, CA and Preqin datasets yield qualitatively and quantitatively similar performance results. There is little reason to believe that the Burgiss and Preqin datasets, in particular, suffer from performance selection biases in the same direction. Accordingly, we think this suggests that the three datasets are unbiased and, therefore, suitable for academic research and practitioner use. At the same time, consistent with Stucke (2011), we find that performance, particularly for buyout funds, is markedly lower in the VE data. This confirms that academic research and practitioners should be cautious in relying on VE data."F: "Finally, although it is natural to benchmark private equity returns against public markets, investing in a portfolio of private equity funds across vintage years inevitably involves uncertainties and potential costs related to the long-term commitment of capital, uncertainty of cash flows and the liquidity of holdings that differ from those in public markets. While the average out-performance of private equity we find is large, further research is required to calibrate the extent of the premia investors require to bear these risks."Please see References on page 30: Page on chicagobooth.eduSupplementary Diagrams: