Venture Capital Returns Continued to Reflect Fragile Economic Conditions in the First Quarter of 2010 Short Term Performance Evidences Exit Market Improvements Amidst Ongoing Challenges
ARLINGTON, VA, July 28, 2010-- A gradually recovering exit market helped drive shorter-term venture capital performance upward as of the end of the first quarter of 2010 while the 10-year horizon continued to decline, according to the Cambridge Associates U.S. Venture Capital Index®, the performance benchmark of the National Venture Capital Association. Certain time horizons saw an increase in returns from the previous quarter, reflecting the opening of the IPO window and a record level of merger and acquisition activity in the quarter. However, the improvement was not enough to bolster the 10-year returns which continue to deteriorate as the calculation for this time horizon no longer includes the high performing 1999 calendar year.
U.S. Venture Capital Index Returns for the Periods ending
3/31/2010, 12/31/2009 and 3/31/2009
For the period ending Qtr. 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years
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March 31, 2010 0.7 6.5 -0.7 4.9 -3.7 38.2 24.0
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December 31, 2009 3.3 3.0 -0.2 4.5 -0.9 37.9 23.5
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March 31, 2009 -2.8 -17.3 1.3 5.7 25.8 34.3 22.5
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Other indices at March 31, 2010
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DJIA 4.8 46.9 -1.5 3.3 2.3 9.0 9.8
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NASDAQ Composite 5.7 56.9 -0.3 3.7 -6.3 7.4 8.9
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S&P 500 5.4 49.8 -4.2 1.0 -0.7 7.8 8.7
Sources: Cambridge Associates LLC, Dow Jones & Company, Inc., Standard and
Poor's, and Thomson Datastream.
Note: Because the U.S. Venture Capital index is capital weighted, the
largest vintage years mainly drive the index's performance.
"An improving exit market translates into distributions back to limited partners, a dynamic the venture industry as a whole has not enjoyed since the financial crisis began in 2008," said Mark Heesen, president of the NVCA. "Top firms continue to perform well above the index but that band has narrowed over the last several years, fostering the Darwinian environment in which the venture industry is operating. We will need several quarters of healthy and viable IPOs and M&As to widen that pool of top performers and move returns back to the historical levels expected by our investors."
Said Peter D. Mooradian at Cambridge Associates, "We continue to see a decline in the 10-year return number but believe it will bottom-out in the mid-negative single digits over the next two quarters. Sustained improvement in the exit markets should result in the figure returning to breakeven or modestly positive territory in the second half of 2011."
Vintage Year Return Ratios
The following chart illustrates the relationship between the dollars paid into venture capital funds by limited partners and the dollars distributed back to them by vintage year. The chart also incorporates the residual value of the portfolios at 3/31/10 for an overall ratio. For example, the 2003 vintage year funds have distributed cash of .36 times the amount of capital paid in by LPs. If you account for the current value of the existing portfolio of .77, the ratio increases to 1.13 times. However, 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 1995 vintage year funds have the most positive ratio, returning 6.13 times the cash contributed by LPs, a number which rises to 6.19 should those funds realize the value of what is currently in the portfolio. Later vintage years have yet to return significant cash to LPs as most funds do not begin returning capital until after year 5.
Vintage Year Multiples Analysis
Pooled Mean Net to Limited Partners
As of March 31, 2010
Vintage Year Distribution to Residual Value to Total Value to
Paid in Capital Paid in Capital Paid in Capital
(DPI) (RVPI) (TVPI)
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1981-1994 3.24 0.01 3.25
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1995 6.13 0.06 6.19
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1996 4.71 0.09 4.80
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1997 2.81 0.07 2.89
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1998 1.30 0.16 1.46
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1999 0.65 0.25 0.90
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2000 0.51 0.43 0.94
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2001 0.42 0.60 1.03
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2002 0.42 0.57 0.99
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2003 0.36 0.77 1.13
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2004 0.18 0.89 1.07
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2005 0.12 0.89 1.00
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2006 0.05 0.92 0.96
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2007 0.03 0.92 0.94
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2008 0.02 0.99 1.01
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2009 0.00 0.99 0.99
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Overall 1.09 0.44 1.53
Source: Cambridge Associates
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 March 31, 2010, the database is comprised of 1,294 venture funds formed from 1981 through 2009.
The National Venture Capital Association (NVCA) represents more than 425 venture capital firms in the United States. NVCA's mission is to foster greater understanding of the importance of venture capital to the U.S. economy, and support entrepreneurial activity and innovation. According to a 2009 Global Insight study, venture-backed companies accounted for 12.1 million jobs and $2.9 trillion in revenue in the U.S. in 2008. The NVCA represents the public policy interests of the venture capital community, strives to maintain high professional standards, provides reliable industry data, sponsors professional development, and facilitates interaction among its members. For more information about the NVCA, please visit www.nvca.org.
Founded in 1973, Cambridge Associates delivers a range of services, including investment consulting, outsourced portfolio solutions, independent research, and performance monitoring and tools across all asset classes, to more than 800 institutional and private clients worldwide. The firm has advised clients on alternative assets since the 1970s and compiles the performance results for more than 2,000 private partnerships to publish the Cambridge Associates U.S. Venture Capital Index® and Cambridge Associates U.S. Private Equity Index®, which are widely considered to be the industry-standard benchmark statistics for those asset classes. In total, the firm has over 950 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; Singapore, and Sydney, Australia. For more information about Cambridge Associates, please visit www.cambridgeassociates.com. Contact:
Emily Mendell, NVCA, emendell@nvca.org, 610-565-3904
Itay Engelman, Cambridge Associates, itay@sommerfield.com, 212-255-8386
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