With the exception of the 15-year returns which declined slightly, venture capital performance improved from last quarter across all time horizons as of the end of the fourth quarter of 2010, according to the Cambridge Associates U.S. Venture Capital Index®, the performance benchmark of the National Venture Capital Association (NVCA). The increase in returns marks a continued trend in which the improved exit markets and more favorable portfolio valuations are positively impacting venture performance for the first time since the recession of 2008. Venture capital performance also surpassed the public market indices for the quarter, 5-, 15- and 20-year time horizons as of the end of 2010.
The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,298 U.S. venture capital funds (863 early stage, 168 late & expansion stage, 264 multi-stage and 3 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2010. 1 Pooled end-to-end return, net of fees, expenses, and carried interest as of 12/31/2010.
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.
*Capital change only.
“Collective venture capital performance continues to move in the right direction as we are experiencing a further opening of the IPO window and a strong pace of favorable acquisitions, allowing venture funds to distribute a meaningful amount of cash to their limited partners,” said Mark Heesen, president of the NVCA. “With short-term returns improving and a healthy start to 2011, we can expect these performance numbers to continue on a steady upward trajectory through the remainder of 2011 and beyond.”
“We observed a marked increase in distributions to LPs in the fourth quarter versus the third quarter, and combined with an increase in valuations, led to a nice quarterly return. Barring outside macro factors, we are hopeful that IPO and M&A exits will continue to fuel liquidity,” said Peter Mooradian, Managing Director and Venture Capital Research Consultant at Cambridge Associates.
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 12/31/10 for an overall ratio. For example, the 2004 vintage year funds have distributed cash of .26 times the amount of capital paid in by LPs. If you account for the current value of the existing portfolio of 1.04, the ratio increases to 1.30 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 1996 vintage year funds have the most positive ratio, returning 4.96 times the cash 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 begin returning capital until after year five.
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 December 31, 2010, the database is comprised of 1,290 venture funds formed from 1981 through 2010.