Fund Performance: 2001 Vintage Funds Show A Dot-Com Rebound

The Nasdaq market didn’t fully bottom until a year later, but 2001 was the first true year of dot-com recovery for venture capital.

Funds from the year finally began to turn a corner from the dark vintages of 1999 and 2000. This noticeable rebound is reflected in a VCJ study of performance data from the three-year bubble-era period.

For the first time, more funds show positive IRRs than negative ones. And for the first time, the median IRR climbed into positive territory.

VCJassembled a list of 163 bubble era funds from the current portfolios of 11 public pension funds and endowments. What the analysis found is that 61% of 2001 funds have positive IRRs while only 45% of 2000 funds do and 35% of 1999 funds.

The median IRR is 2.4% from the vintage year. This compares to -1.7% for 2000 and -4.67% for 1999 funds. Worth noting is that many more of the funds have positive double digit IRRs than negative ones, a reversal from 2000 and 1999.

The top 2001 fund on VCJ’s belongs to GGV Capital (f.k.a. Granite Global Ventures), whose 2001 fund has a 30% IRR, followed by Index Ventures II, with a 26.1% rate of return.

The worst two funds from VCJ’s vintage year study are Healthcare Focus Fund, with a -22.8% IRR, and OVP Venture Partners VI, with a -19.1% internal return.

It should be noted that the year’s top 15 performers vary widely in size, but favor mid-sized funds. Eight are mid-sized with $293 million to $830 million in capital. Four are smaller funds with $225 million or less, and two are large funds of $1.1 billion or more.

Yet, they all have a bias toward early-stage deals. Nine of the top 15 funds have an early-stage focus while four target later-stage investments. This is no surprise given that exit markets were slow for much of the past decade.

The 2001 funds also have a brighter path ahead than those of 2000 and 1999. Funds from the vintage year have returned 62 cents for every dollar of original commitment and have a remaining 50 cents of value still in portfolio companies, according to Cambridge Associates.

Funds from 2000 and 1999 have returned more in distributions, but portfolio values are substantially lower. They have less opportunity to return capital as investments find exits.

In the accompanying chart, please find VCJ’s list of 2001 funds with IRRs and LP ownership.

Photo: Traders on the floor of the New York Stock Exchange. Reuters/Brendan McDermid.