Venture Fund Performance – The Ugly Years

The years from 1999 to 2003 are the "ugly years" in my book. The venture industry raised unprecedented amounts in 1999 and 2000 and proceeded to mess up the business. Competition for deals was intense. Dozens of copycat companies were funded in every niche imaginable. Seed rounds were $10mm and the $100mm venture round was normal. It was nuts. I participated in the nuttiness and paid for it like everyone else.

The result was that by mid 2001 it was nearly impossible to raise a new venture fund unless there was a V or an X behind the fund’s name. And it was equally impossible to raise a round of financing for venture backed companies.

The rounds that did get done were at very low valuations and were often cramdowns or recaps of existing portfolio companies. I believe that the deals done in the ’01/’02/’03 vintage years will ultimately produce excellent returns, but it’s hard to see that because many of those deals were done in funds of the ’99 and ’00 vintages that were so far under water that the excellent performance of the ’01/’02/’03 deals will largely go to getting LPs their money back (a good thing for everyone).

Here is some data on the performance of these vintage year funds. As I stated in my previous post, I believe the Cambridge data is better for the post bubble years.


The Cambridge data does show gradually improving returns in 2002 and 2003. These are "pooled average" numbers and net to the LPs (after fees and carry). So this is a proxy for the entire industry.

The numbers aren’t great to be honest. Generating 1.2x on an invested capital after four years isn’t much to write home about. But there are some interesting things going on during this time period that I am going to dig deeper in the next posts I do.