| 1 | VC funds reported negative returns for three consecutive quarters last year starting from Q1 2022, per Pitchbook's latest Global Fund Performance report. The dip across three consecutive quarters was seen for the first time in over a decade. Preliminary data for Q4 2022 suggests a quarterly return of -0.8%, indicating a four-quarter run of consecutive negative returns. However, the figure indicates that the VC funds are showing an improvement after reaching a bottom of -8.7% quarterly returns in Q2 earlier in the year. Quarterly trend data also suggests that funds are inching closer toward positive returns. 
One-year rolling IRR values of VC funds slumped to -6.7% in Q3 2022. The figures seen in the quarter were the lowest since Q3 2009, mainly due to the poor performance of funds greater than $250M. Larger funds witnessed a decline in returns due to the slump in valuations of portfolio startups. Larger funds are most likely to invest in late and growth-stage startups, which have seen massive valuation markdowns due to macroeconomic headwinds. Pre-money median valuations of late and growth-stage startups declined by 22.9% and 64.4%, respectively. Funds smaller than $250M showed better returns in 2022 as most of their capital was likely deployed in earlier-stage startups, particularly in seed stages. Seed-stage startups saw an uptick in median pre-money valuation figure to $13M in Q1 2023. Tiger Global marked down its VC portfolio by 33% in 2022, losing $23B in value. Most of the losses stemmed from a write-down in valuations of portfolio companies such as ByteDance and Stripe. Tiger's VC funds lost between 9% and 25% value in Q4 2022 alone. IRR for Tiger's PIP 12, PIP 11, and PIP 10 funds dropped to 9%, 13%, and 35%, respectively, by the end of 2022. Despite the losses, Tiger's VC division fared better than its hedge fund and long-only verticals, which reportedly lost 56% and 67% of their value, respectively. Between April and December 2022, SoftBank Group's Vision Fund 2 lost 30% of its value. Sequoia Capital's 2020 U.S. Growth IX Fund, 2018 China seed-stage fund, 2021 U.S. fund, and 2022 fund have seen valuation markdowns of 5%, 9%, 10%, and 15%, respectively. 
Pitchbook's analysis shows that VC funds with vintage years between 2019 and 2021 will likely fall short of historical TVPI values of 2x to 3x returns. Per Pitchbook, despite the short-term dip in IRR values, many of the VC funds could generate positive returns in the long term. Historically, VC funds across the three-year, five-year, and 10-year horizon have shown the strongest returns amongst all private capital investments at 25.2%, 20.9%, and 16.6%, respectively. VC funds showed strong returns between 2020 through early 2022. However, VC returns are still one of the riskiest asset classes. Between 2004 to 2017, VC funds had a 20.8% gap between the top and bottom quartile range, "the widest spread of all private market strategies," per Pitchbook. |
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