Historically, the majority of the return earned by venture capital funds results from portfolio companies either reaching the public market by way of an offering or being bought out by other companies. On average, at the time of public offering, venture capital funds hold more than 30% of the company's equity, with the leading investor holding more than 15% of the company and appointing approximately one-third of the representatives to the company's board of directors. This rate is preserved (mainly due to lock up clauses in the offering arrangement) for approximately one year after the offering.
An interesting phenomenon is that highly regarded venture capital funds have an impact on increasing the valuation of shares comparable to similar companies going public at the same time. The argument is that good venture capital funds know how to choose more successful companies and/or that the best investment opportunities are typically presented to them as well. In addition, offerings of companies which are backed by venture capital funds are often made by underwriters with more experience in the particular type of company in question, and the holdings of institutional investors in the company after the offering are higher.
After the lock up period, which is usually dictated by the underwriters, funds tend to distribute their profits from the investments among the investors. The funds may sell the shares on the stock exchange and distribute the sale proceeds, join a second offering alongside the company and sell shares to the public or, alternatively, may distribute the shares among their investors (payment in kind).
In many cases, distributing the shares among the investors somewhat complicates the measurement of the return on the investments. Since such a distribution is not an actual sale, it need not be reported to the SEC, and it is almost impossible to track based on publicly available information only. In addition, various research has suggested that the return on the shares after they are distributed to investors tends to be negative, although these findings depend on the index used as a standard for measuring the returns. The return to investors for the purpose of the "carried interest" calculation is usually measured according to the price at the distribution of the shares among the investors, since after the distribution they are free to sell the shares.