With the exception of the 20-year return which increased modestly, venture capital performance declined across most time horizons as of the end of the second quarter of 2010, according to the Cambridge Associates US Venture Capital Index, the performance benchmark of the National Venture Capital Association.
While the deterioration was mild, it reflected ongoing challenges in today’s venture-backed exit market which continued to struggle to recover from the financial crisis of 2008.
Still venture capital performance surpassed the public market indices for the quarter, three, five, 15 and 20-year time horizons.
"While we have seen increased exit volumes in 2010, the number of IPOs and acquisitions have not translated to improved venture returns yet," says Mark Heesen, president of the NVCA. "The venture industry will likely see several more quarters of declining performance overall until distributions to limited partners begin to flow more readily in the coming year. Based on the current exit market, the ten-year return number – which we view as the most reflective of industry performance – won’t begin to reverse its negative trend until mid- 2011."
The 1995 vintage year funds continue to have the most positive ratio, returning 6.14 times the cash contributed by LPs, a number which rises to 6.19 should those funds realise the value of what is currently in the portfolio. More recent vintage years have yet to return significant cash to LPs as most funds do not begin returning capital until after year five.
