VC Funds' Losses Signal Retrenchment

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April 11, 2001 (4:02 PM EDT)

By Mary Mosquera,

Venture capital funds returned losses in the final quarter of 2000 for the first time in two years, said a report this week from Venture Economics, a unit of Thomson Financial.

Newer funds that invested in IT and Internet companies experienced bigger hits than older established funds, the report said.

The year-end losses, the largest quarterly declines in 20 years, signal that venture capital fund firms will likely concentrate on the quality of companies already in their portfolios instead of seeding untested candidates.

Venture capital firms invest largely in private companies and realize returns when the company is sold either on the public market or to another buyer.

"The volatility in the public markets and the meltdown in dot.com land were sure to have an impact," said Jesse Reyes, Venture Economics vice president.

The report released Monday tracked 1,625 U.S. and European venture capital funds.

Returns had fallen for four consecutive quarters but finally dipped into negative territory with a 6.3 percent loss for the quarter ending Dec. 31, the report said.

Prospects are uncertain for the funds and firms that only started investing in the last three years and largely concentrated on the IT industries, Reyes said.
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