It can be hard to tell how venture capital firms are doing. Sometimes it’s easier after a big exit, like Figma’s last week, which gave us a window into the sizable returns some of its early backers, including Index Ventures and Greylock, could capitalize on. But VC firms are usually an opaque bunch when it comes to performance.
So when the market started to sour in Q1, it was obvious we wouldn’t know how things were actually faring until the data started trickling in from their limited partners, or LPs, who, if public, generally have to make much of that information public as well. Meeting documents from pension funds are starting to give us a first look at recent venture capital outcomes.
The folks over at Sacramento County Employees’ Retirement System (SCERS) released their Q1 performance data this week. We decided to unpack the numbers and use their stakes as a potential sign of how other funds from the same vintage — referring to the year they started deploying capital — might be faring.
The main thing to highlight, if your firm’s fund is reaching maturity, is that the inflated valuations and exit prices of last year don’t seem to have materialized into the kiss of death that many were expecting when sinking tech stocks started to impact venture in the first quarter. Not yet, at least.
Although I’m sure some older funds are feeling the pain from maybe holding a public stake too long, it doesn’t appear to be a universal struggle among funds reaching maturity, and not for the funds backed by SCERS.
The pension has several commitments into venture firms almost at the end of their lifecycle: Trinity Ventures XI, 2012 vintage; Khosla Ventures V, 2013 vintage; and NEA 15, 2014 vintage. The total value to paid in (TVPI) multiples (which calculate the value an investment has produced relative to the money that went in) for these fund stakes at the end of Q1 were 2.68x, 3.71x and 2.2x, respectively, according to SCERS meeting documents.
The overall venture industry benchmarks for Q1 were pretty good, too. Looking at the Cambridge Associates benchmarks for these vintage years, each landed above 2.4x for Q1. For those who don’t know, that means LPs are getting at least twice the money back that they put in. I’m not sure they could say the same for their public equity portfolios after Q1.
While net IRR isn’t always the most reliable data point due to many institutions calculating it differently — now you know! — those looked fine in Q1, too, when you consider that most public pensions are striving for an overall yearly return of 7% to 10%. Trinity returned 17%, Khosla returned 28.5% and NEA clocked 17.9%.
How does this all compare to Q4 2021, when the market was blissfully unaware of the impending slowdown? Not terribly. The average benchmark TVPI multiple for these three vintage years in Q4 2021 was 2.68x. In Q1 2022, it was 2.61x, a decline of just 2.6%.
In contrast, in the same quarter, the Nasdaq was down 9.1%, the S&P 500 was down 4.9% and the Dow was down 4.6%. Of course, this isn’t a perfect comparison by any means, but it does give some context to a topic that TechCrunch has explored before: Things aren’t great but also not as terrible as some are making it seem.
So, what does that mean for Q2 performance and beyond? Well, for one, it means that funds went into the tumultuous second quarter on better footing than I — and I’m sure others — originally predicted.
Hopefully, later-in-life funds took Q1 as a catalyst to wrap up old holdings and dump public stock holdings if needed before the broader selloff continued in Q2. The fact that exits largely haven’t picked back up doesn’t have me super optimistic, but we won’t know until we see the data.