PitchBook News - VC returns snap back to reality

A suddenly sour macro environment took its first victim in unprofitable growth stocks.

Next came broader indices falling into bear market territory along with a flight from fixed income markets.

Now, LPs' VC portfolios may be the next target of persistent inflation, rising interest rates, and slowing economic growth.

VC funds saw a nearly unprecedented run of strong returns from the pandemic-induced lows to the end of 2021, helping the asset class outpace all major private fund strategies over recent history.

However, almost two-thirds of the quarterly returns for VC from Q2 2020 through Q3 2021 have come from unrealized values on average; a period only surpassed by the dot-com run-up.

With the comp sets of tech companies in public markets seeing a reset in valuations over the last year, it's highly probable that current fund net asset values see a haircut soon.

Our first, way-too-early look at VC fund returns suggests some of that haircut has started.

Preliminary data for Q1 2022 indicates that 68.1% of reporting VC funds had a drop in valuations from their 2021 peak, a multi-year high mark. Of those funds with a markdown, the median drop was -7.8%.

 

Click for a big version of this chart on VC fund markdowns.