money.jpgNot to beat on a dead horse — we’ve mentioned this theme several times over the past year.

More money is still rushing into the valley, and you’ve got to wonder where it will all go. The latest firm to raise money is Cupertino’s Bay Partners, which has just announced a $290 million fund. There have been several other funds raised lately, which we haven’t mentioned, including Morgenthaler’s $458 million fund announced earlier this month.

But check out this page, which shows the financial performance of firms like Bay Partners and Morgenthaler. It shows that CalPERS, the California Public Employees’ Retirement System, hasn’t made any money off its investments in the prior funds raised by Bay or Morgenthaler — as of June 30, 2005, at least. Granted, these funds were raised in…

…2001, and so they’ve only had four years to mature, and may still make money. But with Bay Partners showing a -24.7 percent internal rate of return, and Morgenthaler a -8 percent, it is one more reminder that investors decide to give money to venture capital firms based more on soft factors (evaluation of past record and experience of the firm’s partners, other hunches, etc) than hard ones. More art than science. But then you knew that, right?

Meanwhile, Rebecca Buckman of the WSJ has a good piece today about how many Internet start-ups seem to need less money than VCs are wanting to give them, something we also wrote about recently.

By last year, several top venture-capital firms were clamoring to invest in Flickr through its parent company, Ludicorp Research & Development Ltd. In December, Mr. Butterfield had a funding offer from Accel Partners of Palo Alto, Calif. But the entrepreneur decided instead to sell to Internet giant Yahoo Inc. for what people familiar with the matter say was about $25 million, significantly higher than the value Accel had put on the company and Accel’s proposed investment.

…And all this is happening at a very inconvenient time for the venture-capital industry: It raised more money in the first three quarters of this year than it did in 2004 — and needs places to park it. Many Internet companies attending a Web-business conference here earlier this month described venture money as “almost superfluous,” says Jason Pressman, a principal at Shasta Ventures in Menlo Park, Calif.

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