Rising Returns

Venture returns advanced during the first half of the year, and the University of Texas Investment Management Co.’s portfolio tells the tale well.

The Lone Star State LP marked up the value of 37 venture funds in its portfolio from February to May, by far the majority of its holdings. Only 12 IRRs dropped during the period and seven remained unchanged, according to a VCJ analysis of its active funds.

This revaluing parallels trends across the industry. During the first half of the year, venture returns rose for all investment periods except the 15-year time horizon, according to Cambridge Associates and the National Venture Capital Association. The second quarter, in particular, was the first since late 2009 to show the 10-year investment horizon in positive territory and the third straight in which firms distributed more capital than they called.

The Cambridge/NVCA report found one-year returns were 26.3% as of June, compared with 13.5% at the end of 2010, and the 10-year return crept to 1.3% from -2% at the end of December.

At UTIMCO, the big winners were funds from the Foundry Group, Gobi Partners, Spark Management Partners and Morgenthaler Venture Partners. Foundry Group’s 2007 fund saw the largest uptick in value followed by Gobi’s fund from the same year.

Spark’s 2007 fund and Morgenthaler’s 2008 fund also experienced significant IRR improvements.

It should be noted that VCJ’s analysis did not include UTIMCO’s investment in two funds managed by Correlation Ventures. Correlation Ventures Executives Fund and Corrections Ventures L.P. were added to the portfolio in May 2011 and could not be compared to an earlier period.

UTIMCO made a combined commitment of $25 million to the two funds.

Where returns go from here is anyone’s guess. Since late summer, the IPO market for venture-backed companies has been largely shut. So the rest of the year is a big uncertainty, even with Groupon having debuted its IPO in early November and Zynga lining up to float its shares, as of the VCJ press deadline.

What follows is a list of the 18 UTIMCO funds with the greatest change to their IRRs, both positive and negative.