SAN FRANCISCO (AP) — Venture capitalists began this year in a familiar position — sinking deeper into the morass of losses left by their high-tech investment spree of the late 1990s.
The average venture capital fund posted an average one-year loss of 29.1 percent through March 31, according to industry statistics released Wednesday. It marked the ninth consecutive quarter that the industry has been in the red, according to Thomson Venture Economics and the National Venture Capital Association, which jointly compile the data.
The 29.1 percent decline marked the industry’s most severe setback since the third quarter of 2001 when the average venture capital fund posted a one-year loss of 32.4 percent.
In another sign of distress, the venture capital funds lost an average of 17.1 percent in the three years ending in March, marking the industry’s worst showing over such an extended period. Venture capitalists had posted an average three-year gain of 41 percent in March 2002.
The deterioration stems from the diminishing value of the startups venture capitalists helped launch a few years ago to capitalize on the stock market’s ravenous appetite for high-tech companies.
Venture capitalists poured $210 billion into startups during the five years ending in 2000 and frequently reaped huge returns when those companies sold stock in initial public offerings. In 1999, for instance, venture capitalists enjoyed an average return of 165 percent.
But the high-tech famine of the last few years killed hundreds of startups and reduced the values of the revenue-starved survivors. The conditions have soaked venture capitalists and their investment partners with painful losses.
For a while, venture capitalists were at least faring better than investors with holdings in publicly traded tech companies.
But that is no longer the case. The tech-driven Nasdaq composite index declined 27.3 percent during the year ended in March to beat out the average venture capital fund.
Venture capitalists are now hoping that the stock market can help reverse their losses. The Nasdaq index raised hopes for better days with a second quarter gain of 21 percent.
There also have been signs of life in the IPO market, with a recent spurt of high-tech startups making successful debuts on Wall Street.
FormFactor Inc., a Livermore, Calif. maker of computer chip testing equipment, went public last month at $14 per share. The shares have since gained 34 percent, closing at $18.80 Wednesday on the Nasdaq Stock Market. Since DVD software maker InterVideo Inc. priced its IPO at $14 last week, the Fremont-based company’s shares have surged by 44 percent, closing at $20.18 Wednesday on the Nasdaq.
Keeping the recent IPO momentum going is essential for venture capitalists, said John Taylor, a vice president for the National Venture Capital Association. “Until the IPO market reopens, we fully expect the negative short-term returns to continue.”
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