Continued Recovery is Tenuous As Exit Markets Remain Fragile
Venture capital performance continued to improve as of the second quarter of 2011 according to the Cambridge Associates U.S. Venture Capital Index®, the performance benchmark of the National Venture Capital Association (NVCA). Increased returns were seen across all time horizons, with the exception of the 15-year number, and were driven by the recovering exit market and favorable valuations of companies currently in the venture capital industry portfolio. The quarter marks the first time since the third quarter of 2009 that the 10- year horizon showed a positive return.
The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,319 U.S. venture capital funds (870 early stage, 172 late & expansion stage, 274 multi-stage and 3 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2011.
“We are encouraged by the continued performance improvements that the venture industry exhibited in the first half of this year, but we remain extremely cautious as the current exit environment has threatened the asset class’s ongoing recovery,” said Mark Heesen, president of NVCA. “In order to achieve the level of historical performance that limited partners have come to expect, we must have a thriving IPO and acquisitions market, and the former essentially closed mid-August of this year. Many fine companies await the market’s strengthening so that they can access the capital needed to continue their growth trajectories.”
“Venture firms distributed more capital than they called for the third straight quarter, which is encouraging,” said Theresa Sorrentino Hajer, managing director and venture capital research consultant at Cambridge Associates. “However, since June 30, 2011, the volatility of the public markets and economic uncertainty have challenged the IPO market, which may hinder distributions in the near term. If prolonged, this uncertainty may also negatively impact private company valuations and, therefore, fund performance going forward.”
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