Difficult Q3 2011 did not Slow Improvements in Long Term Venture Performance PDF Print E-mail
Tuesday, January 24 2012


10-Year VC Returns Continue to See Gains

A challenging IPO market in the third quarter of 2011 was not enough to stop the steady improvement of the 10-year venture capital return numbers, according to the Cambridge Associates LLC U.S. Venture Capital Index®, the performance benchmark of the National Venture Capital Association (NVCA). While performance notably fell for the quarter and one-year time horizons, venture fund returns for the 10-year horizon doubled from the previous quarter. The longer 15- and 20- year numbers remained relatively stable. Additionally, the venture capital index outperformed the DJIA, NASDAQ Composite and S&P 500 across every time horizon with the exception of the 10-year number where, despite recent gains, there remains significant room for improvement.
 

US Venture Capital Index Returns for the Periods Ending
9/30/2011, 6/30/2011, 3/31/2011, 12/31/2010, 9/30/2010
Cambridge Associates LLC U.S. Venture Capital Index®1 for the periods ending

Qtr.

1
Year

3
Years

5
Years

10
Years

15
Years

20
Years

September 30, 2011

(0.7)

20.9

4.9

6.7

2.6

31.7

27.3

June 30, 2011

7.0

26.3

4.3

7.4

1.3

30.9

27.4

March 31, 2011

5.0

18.5

2.0

5.9

-0.1

34.3

26.5

December 31, 2010

8.4

13.5

-0.2

5.7

-2.0

34.8

26.3

September 30, 2010

3.7

8.2

-2.1

4.2

-4.6

36.9

25.6

September 30, 2011

U.S. Venture Capital - Early Stage Index 1

(0.7)

21.9

4.4

6.3

0.9

43.1

31.5

U.S. Venture Capital - Late & Expansion Stage Index 1

1.1

25.6

12.7

12.9

6.7

13.1

21.4

U.S. Venture Capital - Multi-Stage Index 1

(1.3)

17.7

2.9

5.0

4.5

29.5

24.4

 

DJIA

(11.5)

3.8

3.2

1.4

4.7

6.5

9.2

NASDAQ Composite *

(12.9)

2.0

4.9

1.4

4.9

4.6

7.9

S&P 500

(13.9)

1.1

1.2

(1.2)

2.8

5.2

7.6

Sources: Barclays Capital, Bloomberg L.P., Cambridge Associates LLC U.S. Venture Capital Index®, Frank Russell Company, Standard & Poor's, Thomson Datastream, The Wall Street Journal, and Wilshire Associates, Inc.
 

1.The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,327 U.S. venture capital funds (876 early stage, 171 late & expansion stage, 277 multi-stage and 3 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2011.
Pooled end-to-end return, net of fees, expenses, and carried interest.
*Capital change only.


"In the third quarter, the volatile exit market had an impact on the quarterly and annual return numbers," said Mark Heesen, president of NVCA.  "However, the exit market did stabilize at the end of the year and we now have a record number of venture-backed companies in registration to go public. If these companies are able to successfully IPO in the near term and the acquirers continue to purchase our companies, we expect to see consistent and marked performance improvements across all time horizons in 2012."

"The marginally negative third quarter performance reflected the recent shakiness of the IPO market," said Theresa Sorrentino Hajer, managing director and venture capital research consultant at Cambridge Associates. "Maintaining a longer term focus remains important, and we would expect the ten-year number to continue to improve as it moves beyond the poor return years of 2001 and 2002."

Vintage Year Return Ratios

The chart on the next page lists the ratio between the dollars paid into venture capital funds by limited partners (LPs) and the dollars distributed back to them by vintage year. The chart also includes the multiple of residual value to paid-in capital as of 9/30/11. For example, the 2007 vintage year funds have distributed cash of 0.13 times the amount of capital paid in by LPs and the residual value is 1.19 times the paid-in capital; the total value multiple is therefore 1.32 times. It is important to note that the residual value is unrealized and will change as companies exit the portfolio, are revalued, or are written off.

The 1996 vintage year funds continue to have the most positive ratio, returning 4.97 times the capital contributed by LPs, a number which rises to 5.03 should those funds realize 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 have the opportunity to begin returning capital until after year five.
 

Vintage Year Multiples Analysis Pooled Mean Net to Limited Partners
As of September 30, 201

 

Vintage Year

Distribution to Paid in Capital
(DPI)

Residual Value to Paid in Capital (RVPI)

Total Value to Paid in Capital
(TVPI)

1981-1995

3.52

0.01

3.53

1996

4.97

0.05

5.03

1997

3.07

0.04

3.10

1998

1.38

0.11

1.49

1999

0.77

0.17

0.94

2000

0.61

0.35

0.96

2001

0.56

0.53

1.09

2002

0.52

0.51

1.04

2003

0.43

0.82

1.25

2004

0.32

1.09

1.42

2005

0.26

0.90

1.16

2006

0.15

1.02

1.17

2007

0.13

1.19

1.32

2008

0.06

1.19

1.25

2009

0.02

1.23

1.25

2010

0.00

1.09

1.10

2011

0.00

1.20

1.20

Overall

1.08

0.51

1.59

Source: Cambridge Associates LLC


Additional Performance Benchmarks

To view the full, comprehensive report, which includes tables on additional time horizons, vintage years, and industry returns, please visit the Cambridge Associates or NVCA websites.

Cambridge Associates derives its U.S. venture capital benchmarks from the financial information contained in its proprietary database of venture capital funds. As of September 30, 2011, the database included 1,327 venture funds formed from 1981 through 2011.

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