Did you see the Q2 venture returns report from Cambridge Associates and the NVCA (note: pdf)? If so, you were probably as intrigued by the chart on page 7 as I was.
On that page is a chart of "US Venture Capital Dollar-Weighted Internal Rate of Return on Vintage Year Companies" broken out by sector. They don't break out cleantech as a category, but they do break out Energy. And the numbers are pretty noteworthy.
Energy category IRRs vs. All Companies IRRs
2002 Energy = 43.0%, All = 8.75%
2003 Energy = 46.0%, All = 12.3%
2004 Energy = 10.4%, All = 12.8%
2005 Energy = 33.5%, All = 9.66%
2006 Energy = 23.7%, All = 4.46%
2007 Energy = 20.1%, All = 0.65%
2008 Energy = 9.10%, All = (0.04)%
So what is this really saying?
On the surface, it looks like there have been great IRRs in Energy as compared to other sectors like IT, Software, Health Care / Biotech, etc. In almost every year post-Internet Bubble, VC investments are producing pretty healthy returns in the Energy category, in all but one year beating the performance of the overall VC pool. If energytech VCs are getting these kinds of IRRs, that looks good compared with current criticism of venture capital that it's been producing sub-par returns versus the risk level inherent to the category.
But wait a minute, there's a big catch.
If you read the fine print in the methodology, some (and most likely, the predominant portion) of these IRRs have been calculated based upon NAVs (net asset value), not actual cash returns. So, for example, if a company took in a Series A in 2002, and since then they've had significant up-rounds but no exit, the value of the company is pretty much* set at whatever was the valuation of the last round. In the aggregate, 2002 vintage companies who took in money that year and later are looking at pretty significant up valuations versus where they were when the money went in. At least in the numbers CA is tracking.
What this really reflects, therefore, is just what we've talked about here many times over.
1. The aggregate dollar totals in cleantech venture capital have been dominated by a relatively small number of really huge late-stage deals.
2. While overall economic conditions are definitely having an impact, many of those well-capitalized companies hadn't had to take in lower-valuation follow on capital through Q2 2008. So on paper, they're still being carried at those previous high valuations.
In fact, in another part of the report they show that the actual cash distributions across all VC categories are just about nil from 2004 vintage funds onward, probably moreso in cleantech (I'm guessing).
So don't read this chart and get all excited. These numbers will likely be revised downward in future such reports (but we can hope!).
The most important takeaway is probably that cleantech valuations have held up better than others, at least through Q2.
...Note I'm not at all criticizing the methodology used in this report. It's great data and hard to do anything more than what CA's done with it. Just pointing out what we can conclude from it.
(*it's really not nearly so simple, but let's not get too wrapped around the specifics here)