Union Square Ventures slashed the value of 7 of its funds by 26%. Insiders say this will be the ‘start of a cascade’ of lower valuations for VC funds.

• Union Square Ventures is widely considered to be one of the top performing venture firms of all time.
• USV marked down seven of its funds by nearly 26% this year, a far steeper writedown than other firms.
• Insider obtained the data through a public-records request. Returns are usually a closely guarded secret.

Union Square Ventures, an early investor in Robinhood, Coinbase, and Etsy, is widely regarded as one of the most successful venture firms of all time. However, even the venerable USV is not immune to the severe tech market downturn.

According to investment returns for UTIMCO, which manages the $65 billion endowments of the University of Texas and Texas A&M systems, the firm marked down the value of seven of its funds by nearly 26% this year, a far steeper writedown than many other firms.

USV and UTIMCO both declined to comment. According to a person familiar with the firm’s strategy, the markdowns should be viewed as a reflection of the bleak tech market rather than any concerns about USV, which is far more conservative in valuing its holdings than other firms. As a result, the markdowns are likely a foreshadowing of what is to come as other companies grapple with the diminished value of their holdings.

“This will be the new normal for the next 18 months,” said the head of a powerful family office that oversees investments at a large number of venture capital firms but is not a shareholder in USV. “The smarter guys, like USV, will start doing this, and that will set off a chain reaction.”

VCs have warned of a “mass extinction” event as many startups exhaust the excess capital raised during the boom years of 2020 and 2021 and are unable to raise new rounds or go public.

“I do think the worst is yet to come,” Pitchbook analyst Vincent Harrison told Insider.

Venture firms are required to value their holdings at fair market value, but determining the value of illiquid assets leaves a lot of leeway. In good times, venture capitalists marked up their books based on increasing funding rounds. In these more difficult times, most startups have yet to raise at lower valuations, so their investors value them at higher prices from the peak that they would never be able to obtain in this market.

“Everyone is hoping the market will recover so they don’t have to admit how far their portfolios have fallen,” said a Bay Area venture capitalist. “Because Union Square has already delivered such excellent results on realized gains, they aren’t overly concerned about writing down unrealized gains.”

Union Square markdowns much steeper than other firms

Insider obtained the information through a public-records request, providing a rare glimpse into information that is normally a closely guarded secret in the highly opaque world of venture capital. Unlike many other financial institutions, venture capital funds are not required to show their returns on startup investments.

They show that at the end of February, UTIMCO’s investments in USV funds were worth $201 million. They had dropped to $149 million by the end of May.

Other venture holdings in UTIMCO’s vast venture portfolio either increased or experienced slight declines during the same time period. Sequoia Capital raised 16 funds ranging in size from $199 million to $206 million. Y Combinator kept two funds from 2021 and 2022 almost entirely intact. GGV Capital reduced the value of 13 of its funds from $305 million to $296 million.

USV reduced the value of seven of its funds, with the 2012 fund losing 34% of its value. It is unclear which startups USV invested in saw their value decline.

USV’s markdowns should not be interpreted negatively. With an IRR of 53%, that 2012 vintage has already returned more than $592 million from a $25 million UTIMCO investment, most likely from an early 2013 bet on Coinbase.

VC is a long game where bets can take up to a decade to pay off, as USV cofounder Fred Wilson blogged about in 2021.

“I have found that patience is often rewarded in early-stage investing,” Wilson wrote. “Our early-stage funds can often take 15 to 20 years to be fully liquidated, but they can also produce much higher total returns.”

Long-term capital return is far more important than quarterly markdowns. As Insider reported last year, USV has been in a league of its own by that standard.

USV has returned nearly $1.2 billion in distributions to UTIMCO investors on a $129 million investment. The overall IRR, or internal rate of return, is 59%.

With an IRR of 66%, USV’s 2004 fund returned more than $305 million in cash from a $22 million UTIMCO investment. This fund, widely regarded as one of the best in the industry, made early and highly profitable investments in Twitter, Zynga, and Tumblr.