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Don't Read Too Much Into The Claims That Intellectual Ventures Returns Are Negative

Venture Capital

from the too-early-to-tell dept

Thu, Jul 29th 2010 3:53pm — Mike Masnick

A bunch of folks have sent over the story from TechCrunch, based on a tweet from Chris Dixon that patent hoarding giant Intellectual Ventures isn't doing so hot for those who invested in it. Now, it's no secret that I'm no fan of Intellectual Ventures. I believe the company represents a huge tax on innovation and has a variety of very questionable business practices. I would be very happy to hear that it was doing poorly. But, unfortunately, the numbers being revealed are mostly meaningless.

To understand why this information is even out there, you have to go back to 2002. Historically, the internal rate of return (IRR) for venture capital funds was kept secret from the outside world. However, many big public universities invest in such funds and get the usual reports about those funds' performance. Back in 2002 (I believe, due to a reporter's request), the University of Texas was the first of a few public institutions to realize that, being public, they probably should publish that information. Venture capitalists freaked out that people would misinterpret the results.

That's because the IRR for a venture fund, especially in the early years, is pretty meaningless. A typical venture fund lasts ten years, and the first few years is when all that money is being invested, and there's no real returns. On top of that (and, more importantly), the IRR is usually reported based on a totally made up number, which is what the VCs believe their portfolio is valued at, since it doesn't involve a liquid market. VCs were afraid that publishing such numbers would freak people out, and lead VCs to focus on more short-term investments. I don't think that's really happened, but it does appear that the Intellectual Ventures funds represented here (showing IRRs of -73% and -10%) might not really mean anything.

Without knowing the details of what those funds represent, or how long the timeframe is for those funds, it's difficult to assess what's really going on. It does look like IV isn't valuing its first fund very highly any more, and considering it's Intellectual Ventures I, perhaps you can assume it's further along in the process. But, in a game where a sudden "home run" can change things quickly (even if we're talking about patent infringement lawsuits or licensing demands, rather than true venture investments), it's difficult to make any serious call on the performance just yet.

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Filed Under: irr, patents, returns
Companies: intellectual ventures, university of texas

6 Comments

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Pixelation, 29 Jul 2010 @ 5:23pm

Mixed bag
Intellectual ventures is kind of a two headed monster. On the one hand the "Evil" patent hoarder on the other hand supporting green initiatives and they made the super cool anti-mosquito laser.

http://www.youtube.com/watch?v=0C5vkbtpdN4
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- scarr (profile), 29 Jul 2010 @ 5:53pm
  
  Re: Mixed bag
  I was going to ask about this. I'm currently reading Superfreakanomics, and IV gets talked about rather favourably in it for their climate control ideas. I thought the name sounded familiar, but I had to check that it was the same people who've been doing all the patent trolling. (The authors said IV was creating a "market for IP", or something like that.)
  
  Tied to this, the authors pointed out that IV spent a lot of money on projects (like the climate control), which weren't expected to make any money. Once I realized they were the group who sued everyone for infringement, it made me wonder if their "cheap and simple" solutions would remain that way.
  
  As you say, "mixed bag".
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  - Anonymous Coward, 29 Jul 2010 @ 6:20pm
    
    Re: Re: Mixed bag
    We already have practical ways to keep insects away. It's called sound. Not all of those sound devices work, so you really have to find one that does. Or, depending on your specific sound card and speakers, you can try to implement sounds disliked by insects using Audacity (Gnu - GPL).
    
    Insects generally hear frequencies from about 30K to 60K, depending on the specific insect in question. Humans don't really hear frequencies that high. Now imagine what a burden a constant smoke detector going off in your house would be. Basically, that's what this sounds like to insects. It interferes with their ability to hear other things and their hearing is an important aspect of their survival. It's a huge deterrent to their survival.
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    - scarr (profile), 30 Jul 2010 @ 12:19am
      
      Re: Re: Re: Mixed bag
      I'd question if you've tried what you suggested. I don't have any speakers that will produce 30kHz very well (60kHz is a laugh), and I have multiple (audio) monitors in a recording studio. Beyond that, your sound card would have to operate at 192kHz, which few will.
      
      Furthermore, the laser target just female mosquitos (based on the beat frequency of their wings), not all insects. I'm not an expert on animal hearing, but I doubt you'd find a sound that specific. You wouldn't want to drive your chickens crazy in the process of keeping mosquitos away.
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  - Anonymous Coward, 29 Jul 2010 @ 9:06pm
    
    Re: Re: Mixed bag
    That section of the book was rather silly. The authors, at the beginning of that section, say something that is basically "Some critics say IV is a patent troll, but it isn't!" Evidence for that counter-claim? They don't even attempt to give any at that point, before they dive off into IV's "cool stuff."
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sprearson81 (profile), 10 Jun 2012 @ 9:04am

Meaningless mumbojumbo (
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