This graph contains pretty dramatic news: the lowest quarter of VCs used to make small positive returns up till 1997, and since then they've consistently lost more and more money. It looks like a lot of dumb money arrived in 1997.
I know the article says to ignore the trends after 2003 (too soon to tell period), but the downard slope of both quartiles is still interesting and I wonder why it's there. Lot of web 2.0 investments tanking perhaps?
The downward slope is almost certainly due to the increase in money being put into VC funds. Without a corresponding increase in the number of promising startups, the returns have to fall.
The graph is a visual illustration of the standard VC complaint: too much money chasing too few deals.
However, a 2003 vintage fund probably has had very few (if any) exits. I would like to understand what exactly the y-axis of this graph models, and how it accounts for performance. Is performance based on the value actually returned to investors (in which case, 2003 and newer funds would be expected to have little or zero return), or the current valuations?
There's very little I dislike more than graphs with unlabeled (or ambiguous) axes.
Here's a relevant page from Cambridge Associates (the source for this data): https://www.cambridgeassociates.com/Indexes/
I couldn't find the exact stuff Kedrosky graphed but most of their stats are for net end-to-end return to LPs, which would be value actually returned to investors.
