University of California Returns Show Kleiner and Sequoia Are Fallible, Too (Slideshow)
Few venture fir
ms are more storied than Sequoia Capital and Kleiner Perkins Caufield & Byers.
But after several hugely successful funds in the mid 1990s, both firms saw late dot-com era funds run afoul of bubble-year challenges.
The data for this observation come from the venture portfolio of the University of California. The university’s board of regents invested in five Kleiner funds and five Sequoia funds from 1992 to 2000.
The now 11- and 12-year-old funds show decidedly negative IRRs, based on the data updated through December.
To be fair, Kleiner and Sequoia have plenty of company. The regents invested in eight 1999 funds, but only one has a positive IRR. Likewise it invested in seven 2000 vintage funds, but only one has a positive IRR. Of the funds with negative IRRs, Kleiner and Sequoia rank at or close to the bottom of the list.
The university’s early Kleiner funds are Kleiner Perkins Caufield & Byers VI, VII and VIII, all early stage funds ranging from $173 million to $310 million in size, according to data from Thomson Reuters, publisher of this blog.
The university’s dot-com era funds are Kleiner Perkins Caufield & Byers IX-A, a $504.63 million early stage fund from 1999, and X-A, a balanced stage fund from 2000.
Sequoia Capital VII and VIII are the earliest Sequoia funds in the university’s portfolio. Those funds date from 1996 and 1998, and range from $150 million to $250 million in size. Sequoia Capital Franchise Fund is a $350 million later stage fund from 1999, and Sequoia Capital IX is an early stage 1999 fund of $351.3 million, according to Thomson Reuters. Sequoia Capital X is a vintage 2000 early stage fund of $695.1 million.
The regents made no more recent commitments because Kleiner and Sequoia likely barred it from investing in their funds due to public performance disclosure requirements.
What follows is a slideshow highlighting performance and other details of the Kleiner and Sequoia funds. Slides No. 1 through 5 focus on Kleiner, and slides No. 6 through 10 focus on Sequoia.
All industry average IRR data are from Thomson Reuters.
Vintage: 1992
Stage: Early
Fund Size: $173 million
Commitment: $15 million
Cap In: $15 million
Cap Out: $49.3 million
Portfolio NAV: $677,000
IRR: 39%
Industry Average IRR for 1992: 27.84%
duh said on September 6, 2011
So what’s your point? Think you are going to get institutional LPs to perform due diligence versus blindly backing brand names? Good luck with that. They would rather be wrong for making the “safe” decision than be right for making a “risky” one.
Steve said on September 7, 2011
This is madness – or botched math. You’re saying the 1999 and 2000-era funds have returned ZERO DOLLARS at all? Not a single investment from that fund even liquidated for pennies on the dollar for their LPs? Everything went to that 2% management fee, and maybe not even that? I’ll tell you what probably happened. THEY HAVEN’T EXITED THE INVESTMENTS YET. The funds are still active and the LPs may yet get distributions. Who knows what the final IRRs will be. Who knows if secondary investors will be buying up these LP stakes or even the fund’s stakes in particular companies. The data you have is not complete, and “Cap out: $0″ should be the dead giveaway.
And then there’s the obviously-mistaken stuff that isn’t even physically possible. Consider slide 7; Sequoia’s fund had $16M in from UC, and $33.5M out. That’s over a ~100% return over a (let’s assume) 10-year period. The IRR you quote: 90%. IRR is an annualized number. You don’t need an MBA from Stanford to do a fairly simple geometric average.
Honestly, how can any of us take this stuff seriously?
Santos Halper said on September 10, 2011
This post should never have been published.
There is a footnote at the bottom of the report http://www.ucop.edu/treasurer/invinfo/pe_irr_1210.pdf that states “Fund level data and IRR calculations for Accel, Kleiner Perkins Caufield & Byers, and Sequoia Capital are based on March 31, 2003 as determined by Cambridge Associates LLC and are no longer provided byCambridge Associates LLC.”
In plain English, the Kleiner Perkins vintage 1999 and 2000 funds were likely mostly unrealized in early 2003 but the data in the UC report has not been updated since that date, so these results are not updated through December 2010 (as are the other funds in the portfolio).
For example, according to SEC filings, Kleiner Perkins IX-A had 18,111,504 shares of Google at the time of that company’s IPO in 2004. It stands to reason that this fund delivered great returns but that these returns occured after the first quarter of 2003. These shares today would be worth $10 billion. Athough the shares could have been sold or distributed at much lower prices, this should have still generated several billion dollars in returns (for a $505 million fund). The same holds true for the other Kleiner Perkins and Sequoia funds that were still immature as of March 2003 (although unlikely to the same extent as a fund with a significant then unrealized stake in Google).
To repeat, the premise of this post is false because it assumed that the performance of these funds was being shown after 11 or 12 years (through year-end 2010) when in reality these were results as of March 2003 that have not been updated for the past 8 years and that have clearly changed markedly over time.