Battery Ventures’ Recent Fund Performance: Nothing Special

With this week’s news that Battery Ventures has closed new venture capital funds worth a combined $900 million, we thought it might be interesting to take a look back at the firm’s recent performance.

So we turned to information from state pension funds, one of the few sources of publicly available information about venture capital returns. And Battery’s most mature recent funds—dating from the turn of the millennium—aren’t particularly great.

That hardly makes Battery Ventures unusual. Venture capital in general has performed poorly in the past decade or so when compared with public stock indexes or other, more mundane investments that are much less risky.

To get a sense of Battery Ventures’ performance during this period, we pulled data from the public pension funds of California and Massachusetts. California’s data is posted online, while Massachusetts’ venture and private equity returns are available only upon request. I’ve posted the most recent Massachusetts report, which includes data on many private equity and VC firms through the third quarter of 2012.

Here’s what the data shows: There’s no evidence that Battery Ventures has generated what you’d call a traditional “venture return” in the past decade—something like doubling its investors’ money.

But, as some prominent critics have complained, that hasn’t stopped limited partners (or LPs) at pension funds from writing more checks.

Data from Massachusetts’ pension system shows the state has invested in Battery Ventures funds from at least 1999-2007 (the state does not discuss any performance data for funds that are less than five years old).

Two of those funds—1999’s Battery Ventures V and 2000’s Battery Ventures VI—are old enough to get a good, solid idea of how well the firm’s VCs performed. That’s because those funds are more than 10 years old, an age at which you’d expect all or nearly all of the investments to have run their course.

So here’s what Massachusetts got for its money: As of Sept. 30, Battery Ventures V had an internal rate of return of 8.29 percent. Battery Ventures VI did worse, delivering an IRR of 4.3 percent, according to the MassPrim figures. California’s investor data for the 2000-vintage Battery Ventures VI fund reports a similar IRR of 4.4 percent, as of June 30.

That means the funds made money. But they weren’t blockbuster returns on the scale of what VC firms hope to generate, which are significant double-digit IRRs.

Newer funds show a more mixed picture. The 2005-era Battery Ventures VII, which isn’t yet done generating returns, shows a net IRR of 4.7 percent, according to California’s figures. Massachusetts has that fund at a comparable 4.8 percent IRR.

The 2007-vintage Battery Ventures VIII is showing bigger returns right now, with an IRR of 14.8 percent reported by California and 13.9 percent reported by Massachusetts.

It’s simply too early in those funds’ lifespans to judge how well they’ll actually do—while the industry often describes a “J-curve” that shows funds losing money early and making it back long-term, critical investors like the Kauffman Foundation have said their own VC investments have repeatedly shown higher early returns that calm down over time.

So what’s the takeaway here? Like many of its peers, Battery Ventures hasn’t been delivering the huge returns that venture capital became known for in its prime years in the 1990s. But investors have kept coming back for more.

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