In rare move, VC firm Rhino Ventures makes fund performance public

The six-year-old firm is an outlier in an industry that is traditionally tight-lipped about returns.

Over a period of six years, Rhino Ventures has invested in 20 companies, of which four have exited. Last week, the firm published an anonymized breakdown of its returns with the goal of increasing transparency and trust in their industry.

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

The firm’s second fund, Rhino Fund II, is a $33M early-stage fund that began deploying capital in 2018, and has also invested in 10 companies to date, with 1 exit. As of Q4 2020, its return multiple is 1.15x. “This fund is still in its formative stages with most investments being held at cost,” the firm explains in the same post. “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.”

That they would share any of this information makes Rhino an outlier in an industry that’s traditionally tight-lipped about performance. However, Fraser Hall, managing partner at the firm, believes portfolio company growth is a key metric that entrepreneurs should have access to as they decide who to partner with for their business.

“We came into [venture capital] mostly trying to play by the rules, but we keep finding things that seem strange about venture, and one of them is that no one tells anybody about their results,” Hall recently told me over a Zoom conversation. He says he looked into the norm of keeping fund results a secret and believes there isn’t any real reason for it.

Investors ask a lot of founders in terms of disclosing information before they even write a cheque—and then even more afterwards, he notes. “But nobody gets to look at us? No, we get to be these golden gods that decide who gets money, who doesn’t, and never get measured by anybody,” he says. “It seemed wrong.”

Venture capital outsiders

Hall’s unique perspective is born out of his own unconventional history, which includes an engineering degree, a stint with the Sea Shepherd Conservation Society (“a militant iteration of Greenpeace”), a chapter as a high school headmaster, a UBC MBA, and the co-founding and sale of wearables company Recon Instruments where his experiences with investors left a bad taste in his mouth.

“It turned out to be a lot of a lot of distraction and lot of management of investors, rather than value add, which is what I had been hoping for,” he remembers about his Recon days. That experience has a big impact on the approach Hall and his partners have taken as investors at Rhino.

“We’ve been very clear from the first day that our tribe, our people, are the founders and executives of businesses,” he says. “Most funds interact with founders, and that's the source of their gains. But in the end, their customer really is their investor. And so you build the funds based on the tax advantageous nature to those investors, you build a thesis about what things you’ll go after, based on what you believe will be marketable to your investors. And then you report to those investors, and you're always kind of on a treadmill and looking to raise more capital… And so in a lot of ways, [limited partners] are the true customer of venture.”

However, he adds, “We, from from the get go, said, ‘That's not how we're gonna work.’”

In terms of how this ties back to releasing their returns to the public, he says most investors haven’t thought to say, “Why shouldn’t we share with the general public how our fund is doing?” He thinks founders should be able to know more about their funders than they do today. “It isn't a one way street, although I believe the power dynamic is such that it can be,” he says.

In another illustration of Rhino’s focus on serving founders above all else, it’s worth noting that the firm gave their portfolio companies a heads up about the data dump—but not any of their external LPs. “That shows who our customer is,” Hall quips.

That being said, Hall says his team supports their founders by also being tough on them when they need to be. “But you have to be human, you have to understand their situation, and then not try to take advantage of the business along along its path,” he says. “Venture capital, in my opinion, is a reputation business. Handing out money is a very small piece of what we do… Really where we're spending our time building relationships and trying to build value within businesses, and I think that can often be forgotten by traditional VC.”

Although he has external associates questioning this recent activity, Hall and the firm plan on continuing the practice for the foreseeable future. Hall is determined to buck current trends. “I don't necessarily like the idea that because everything's done one way in the past, we should do that in the future,” he says. “You know, we're supposed to be entrepreneurs by nature; our tribe, our people, and the people who we interact with are entrepreneurial. Shouldn't we be the same and try to constantly be making ourselves better?”