U of TX Return on IV is Off 73%
PE investor Chris Dixon unearthed some interesting news about returns on an investment in Intellectual Ventures funds held by the University of Texas Management Company. The news was picked up by TechCrunch last week.
Go to the report ending May 31, 2010 and blow up page 7. Read how IV’s ROI for Invention Investment Funds I and II were off significantly for the period, especially compared to the holder’s other private equity investments.
Writes TechCrunch reporter Erick Shonfeld:
“The link is a PDF download of a document from the University of Texas Management Company listing all of its private investments in venture funds and private equity funds, along with their internal rates of return (IRR). One of the worst performers is Intellectual Ventures, the patent portfolio fund started by Nathan Myrhvold that has a reputation for patent extortion.
“One of its funds, the Invention Development Fund I, has a negative 73 percent IRR (Dixon mistakenly thought it was negative 78 percent, but close enough). Another fund, the Invention Investment Fund II, has a negative 10 percent return. The two funds combined are delivering a negative 36.66 percent IRR for the University of Texas.”
In fairness to IV, you can’t mix apples and oranges. Performance really depends on the specific nature of UofT’s investment and the poor current results may not accurately represent IV’s overall return on those specific funds.
Early stage venture investments often show extraordinarily uneven results until certain benchmarks are achieved in later years. The private document was likely leaked, so no context is provided and I’m sure that IV is not discussing it publicly.
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This document is a rare peek into what is presumably a direct IP investment. It shows that where patent licensing and litigation are concerned ROI can be difficult to read and painful to watch.
I’m uncomfortable about the lack of context. It is hard to know what the performance (or lack of) really means based in relation to other PE investments or even other licensing activities.
Readers who may be able to provide additional perspective please chime in.
Illustration source: linux.sys-con.com
Great piece of information. Just came from my class in Melbourne Business School where we have discussed IV case.
Seems that their business model doesn’t work so far.