VC Fund Performance Hits Low Point — Signs of Recovery Emerge
Venture capital has faced significant headwinds in recent years due to challenging macroeconomic conditions. While the full impact of the market downturn on VC fund performance remains unclear, new data from the San Francisco Employees’ Retirement System (SFERS) provides valuable insights into the sector’s trajectory.
Key Performance Metrics Reveal Downturn Trends
According to SFERS’s May 8 meeting documents, their venture portfolio posted a -0.9% internal rate of return (IRR) through Q3 2023. This follows dramatic swings in previous years:
- 2021: 48.8% IRR (market peak)
- 2022: -19.9% IRR (sharp decline)
- 2018 (benchmark “normal” year): 22.3% IRR
It’s crucial to note these figures represent SFERS’s entire venture portfolio, including:
- Funds at various lifecycle stages
- Newer funds still deploying capital
- Mature funds returning capital
What the Data Tells Us About VC Market Health
While these aggregate numbers don’t reveal individual fund performance, they clearly indicate:
- Overall VC performance has declined significantly from 2021 peaks
- Mature funds aren’t generating sufficient returns to offset newer fund losses
- The -0.9% 2023 IRR suggests stabilization compared to 2022’s -19.9%
Why SFERS Data Matters for the VC Industry
As one of the most active and experienced institutional LPs in venture capital, SFERS offers a valuable benchmark:
- $3.6 billion venture portfolio across managers and stages
- Long-term commitment to the asset class
- Diverse investments in both emerging and established funds
Recent SFERS commitments demonstrate continued confidence in venture:
- 15 fund commitments in 2023
- 2024 investments include \(75M to IVP XVIII and \)40M to Volition Capital Fund V
The Road Ahead for Venture Capital
While VC funds aren’t likely to deliver spectacular returns in 2024, the SFERS data suggests:
- The worst of the downturn may be behind us
- Performance appears to be stabilizing after 2022’s steep decline
- The industry could be moving toward more normalized returns
This stabilization, while modest, offers cautious optimism for LPs and fund managers navigating the post-boom VC landscape.
