As venture capital firms feel the squeeze from new competitors, unsatisfied investors, and stagnant markets, two of the industry’s biggest names could finally have their performance data revealed to the public.
A California lawsuit from the news organization Reuters is threatening to expose the performance records of Sequoia Capital and Kleiner Perkins Caufield & Byers—Silicon Valley firms that are among the most well-known in the secretive world of VC investing.
If it’s released, the information would provide a fuller picture of how VCs have done over the years and show whether some of the bigger name brands in the sector have done better or worse than their less well-known competitors.
The lawsuit also comes at a critical time for many in the VC industry. Traditionally governed by discretion and close relationships, American venture investing has seen new competition in recent years from boisterous former entrepreneurs like Andreesen Horowitz and new foreign players like Yuri Milner’s Digital Sky Technologies.
The foundations and public employee pension funds that bankroll VC have also become more activist and critical, in some cases pulling back on their investments or complaining that VC performance has stalled in the past decade while some firms sought ever-bigger funds that paid generous fees simply for showing up to work.
That transformation has happened just as the cost to start a digital company has plummeted, making it possible for entrepreneurs to create businesses without tens of millions of dollars in venture capital backing. At the same time, adoption of mobile devices and ever-faster data networks have exploded, sparking a growing hunger for the kinds of innovative digital services from startups that VCs typically like to invest in.
Amid all of that change, the number of venture funds has been shrinking, with power consolidating in the hands of the biggest names and top performers. In short, it can be a rocky time to be a VC—especially if people start asking how your investment decisions have panned out.
For its part, Reuters is seeking pretty basic stuff: the amount of cash invested and returned from 10 specific Sequoia and Kleiner Perkins venture funds over a span of several years, along with their net value and internal rates of return.
Many other VC and private equity firms already have that information disclosed by the public investment funds that supply them with cash. The California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) are two of the best-known public asset managers that publicly disclose the returns they get from their venture capital portfolios, in addition to their performance in the usual mix of stocks, bonds, and real estate funds.
But Kleiner Perkins and Sequoia have avoided that scrutiny through a sort of shell game with the California university system, which invests about 2 percent of its more than $70 billion fund in such “alternative investments.”
Instead of supplying the university system with information on individual fund returns, Sequoia and Kleiner Perkins report “blended” data showing the overall amount of money invested in and returned from the larger firm.
In turn, the university system is given access to more detailed financial information on specific portfolio companies in the various Kleiner Perkins and Sequoia funds—but that information can’t be released to the public under California law.
The upshot is that you can log on to the California state employees or teachers pension system websites and get a broad sense of how many private equity or venture capital firms have done over the years, including competitors of Kleiner Perkins and Sequoia.
But information on those two top-tier firms is nowhere to be found.
Reuters has already won a lower-court ruling, which held that the universities should try to get the individual fund data from Sequoia and Kleiner Perkins so it could be exposed. The two firms have been notably silent on the case, but the California university system is fighting the ruling.
In a press release announcing its appeal, the universities criticized Reuters for seeking the return information, saying
