Venture capital returns: The best, and then the rest

Want to have one of the world's best-performing venture capital funds? If so, it sure helps to have invested in Twitter and Zynga.

Ok, I can hear you muttering a collective "d'uh." But it really is striking to see the (paper) performance of such groups compared to many of their peers. This is no longer a market of four tiers: It's the rarefied best, and then the rest.

The University of Texas Investment Management Co. (UTIMCO) recently sent over data on more than 200 active private equity fund investments, through February 28, 2011. It included dozens of venture capital funds raised in the past decade, but only three of this more limited sample had internal rates of return (IRRs) in excess of 20%. They were:

• Union Square Ventures 2004: 73.39%
• Foundry Group 2007: 57.25%
• Spark Capital II: 56.89%

The Spark fund backed Twitter back in 2008, as part of a $15 million Series B round. Foundry's fund participated in a $10 million Series A round for Zynga in January 2008. Union Square was part of rounds for both companies.

For a sense of direction, the USV fund featured a 48.37% IRR through May 2010, and a 55.87% IRR through August 2010. The only superior IRR in UTIMCO's portfolio belongs to Resource Capital Partners V, an energy-focused private equity vehicle raised just last year (i.e., too immature to have much performance meaning).

Here's the entire report: