Venture Capital Funds Still Suffer From Tech

The tech sector meltdown continues to take its toll.

Venture capitalists are marking down the value of their technology holdings and recognizing the worst losses in the industry’s history, according to statistics released Wednesday.

Venture capital funds posted an average loss of 8.9% in the three months ended March 31, representing the industry’s second consecutive quarter of red ink, according to the study by research firm Venture Economics and trade group National Venture Capital Assn.

The average venture fund recorded a 24.2% gain in the first quarter of 2000, during the height of the Internet investment boom that delivered huge profits to venture capitalists and their limited partners.

This year’s first quarter wasn’t as bad as last year’s final quarter, when venture funds absorbed an average loss of 13.4%. Venture Economics revised the fourth-quarter figure from a previously reported loss of 6.3%.

The bad showing of the last six months resulted in the venture capital industry’s first losses over a one-year period. In the year ended March 31, the average fund fell in value by 6.7%, according to Venture Economics. The industry’s lowest one-year return previously had been a 1.4% gain in December 1984.

Most venture funds appear likely to report losses for calendar 2001 too, said Mark Heeson, president of the National Venture Capital Assn.

“Venture capitalists had been holding off last year and hoping that some of these [companies] might come back,” Heeson said. “But now they are reaching the conclusion that it’s time to pull the IV on the patient and write off their investments.”

Most of the losses in the venture funds are on paper only because the managers haven’t liquidated their holdings yet. One reason venture capitalists have been unable to sell their stakes is because the stock market has all but closed the door on the initial public offerings that showered the industry with huge returns in the late 1990s.