Methodology: Constructing the Venture Capital Index and Benchmarking Against Public Markets using PME
Simulating Venture Fund Performance by Vintage Year
To evaluate the relative performance of venture capital across different vintages, we constructed a synthetic "Venture Capital Index" using Monte Carlo simulations. These simulations were informed by Carta's vintage-year TVPI percentile data, which we used to shape the expected distribution of outcomes for venture funds raised between 2018 and 2023.
For each vintage year, we simulated hundreds of hypothetical funds with the following characteristics:
$100 million fund size
Standard capital call pacing patterns, with capital deployed over a typical investment period of 3–5 years
Distributions were modeled to begin in year 3, gradually increase, and peak around year 7, followed by a tapering period to reflect the typical lifecycle of venture fund liquidity events
TVPI assumptions were based on Carta data, specific to each vintage, to reflect realistic performance dispersion and curvature
This approach allowed us to model realistic cash flow behavior for funds within each cohort and aggregate the results to represent average vintage-year performance. These cash flows form the foundation of our Venture Capital Index.
mPME Methodology: Contextualizing Fund Performance
To make a meaningful comparison between private and public market performance, we use the Modified Public Market Equivalent (mPME) methodology. Rather than comparing total returns in isolation, mPME applies the exact timing and amount of each simulated fund’s capital calls and distributions to a public market index, creating a shadow portfolio that mirrors the cash flow schedule.
We calculate the mPME using both the S&P 500 Total Return Index and the NASDAQ Composite Index. Each simulated fund’s cash flows are mapped 1:1 onto these benchmarks:
Capital calls are treated as index purchases on the same dates and in the same amounts
Distributions are treated as redemptions at corresponding index prices
Residual NAV is treated as a final-period cash inflow
All cash flows are assumed to occur at the end of day, in line with common fund reporting conventions
The result is an mPME IRR, representing the return the public index would have generated under the same capital deployment pattern. We then compare this to the Net IRR of each simulated venture fund to calculate an IRR Spread — the time-weighted performance delta between private and public markets.
This apples-to-apples comparison isolates whether the simulated venture fund created more (or less) value than a passive, liquid public market alternative.
Chart Interpretation
The accompanying chart presents the following for each vintage year:
Simulated Net IRR and TVPI of venture funds, based on Carta-informed assumptions
Corresponding mPME IRR and mPME multiple using S&P 500 and NASDAQ data
IRR Spread, highlighting the relative outperformance or underperformance of private markets
This visualization is not intended to forecast exact venture fund performance, but rather to assess relative performance under consistent assumptions and timing.
Key Assumptions
Benchmark Indices
The S&P 500 Total Return Index and NASDAQ Composite Index are used as public benchmarks. These indices are reasonable proxies for passive public equity exposure, though they may not reflect the specific risk profile of every investor or fund strategy.
Index Pricing
Daily closing prices from Google Finance (INDEXSP:.INX and INDEXNASDAQ:.IXIC) are used for all PME calculations. Data gaps or market holidays may introduce slight mismatches in rare cases.
NAV Treatment
Residual NAV is included as the final-period inflow when calculating IRR and mPME IRR. No interim paper markups are considered.
Carry and Fees
Simulated carry is modeled as a one-time 20% cash outflow after meeting preferred return thresholds. No hurdle rate is assumed unless otherwise specified. Management fees are not modeled separately in this version.
Limitations and Considerations
Benchmark Selection
Using the S&P 500 and NASDAQ assumes large-cap equity market exposure as a proxy for opportunity cost. This may not reflect all investors’ alternatives or align with every fund’s strategy.
Reinvestment Assumptions
mPME assumes full reinvestment in the benchmark index, which may differ from actual public market behavior or limitations in liquidity.
Modeling Simplifications
Carry structures are simplified, and fund structures with tiered waterfalls or delayed fee offsets are not explicitly modeled.
This methodology is intended to provide a directional, consistent framework for evaluating vintage-year venture performance relative to public markets under real-world capital deployment conditions.
