VC fund performance is down sharply — but it may have already hit its lowest point | TechCrunch

Venture capital has suffered huge losses over the past few years due to sour macroeconomic conditions and it is not yet clear how the market downturn has affected the performance of VC funds. But recent data from the San Francisco Employees’ Retirement System (SFERS) gives us something to chew on.

Entered into SFERS’ Enterprise Portfolio -.9% internal return rate last year During the third quarter, according to data from the pension fund’s May 8 meeting. The data also highlighted that the venture portfolio recorded 48.8% IRR in 2021 and -19.9% ​​returns in 2022.

It’s important to remember that these figures include all venture funds in the portfolio, regardless of where they are in their lifecycle and also include funds that are still deploying capital. This means that this number includes funds whose money is still going out and not coming in yet, as well as funds that have reached maturity.

So, what do these numbers tell us? Although they don’t tell us about each fund’s individual performance, or how funds closer to maturity are performing specifically, these numbers tell us that overall fund performance is down. These metrics also tell us that the venture funds reaching maturity in SFERS’ portfolio are not returning capital at a high enough rate to offset the portfolio’s losses on new fund commitments.

Comparing the numbers for 2022 and 2023 to a year like 2021 is an exercise in comparing discrepancies. In a more “typical” year for the enterprise, say 2018, SFERS recorded a 22.3% IRR. This means that while at least 20 funds are still in their investment period, according to TechCrunch estimates, the overall performance of funds that have reached maturity was quite solid.

SFERS performance also shows that the industry has already bottomed out and is on its way back to normalcy. While the pension fund still reported a negative IRR in 2023, -0.9% compared to -19.9% ​​for 2022 is a positive sign.

This data is particularly noteworthy given that SFERS is a fairly active venture LP. The organization has been investing in the asset class for a much longer time than many of its pension fund peers and has amassed a sizeable $3.6 billion venture portfolio that is diverse across emerging and established managers, stage and legacy.

SFERS has long been a supporter of big-name managers. For example, the pension fund has invested more than $273 million in notable capital over the past decade, $250 million into the NEA Fund, and more than $69 million into Mayfield.

Recent performance has also not stopped pensions from investing in the asset class. The pension fund made 15 commitments to venture funds in 2023 and has made two commitments so far this year, including a $75 million commitment to IVP XVIII and a $40 million commitment to Volition Capital Fund V.

So while venture funds don’t seem to be on track to knock it out of the park this year in terms of performance, the worst effects of the recession may already be behind us.