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.
?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.
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.
About NVCA
Venture capitalists are committed to funding America?s most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth. According to a 2011 Global Insight study, venture- backed companies accounted for 12 million jobs and $ 3.1 trillion in revenue in the United States in 2010. As the voice of the U.S. venture capital community, the National Venture Capital
Association (NVCA) empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community?s preeminent trade association, NVCA serves as the definitive resource for venture capital data and unites more than 400 members through a full range of professional services. For more information about the NVCA, please visit http://www.nvca.org.
About Cambridge Associates
Founded in 1973, Cambridge Associates is a provider of independent investment advice and research to institutional investors and private clients worldwide. Today the firm serves over 900 global investors representing more than $ 3 trillion in aggregate assets. Cambridge Associates delivers a range of services, including investment consulting, outsourced portfolio solutions, research services and tools (Research Navigatorsm and Benchmark Calculator), and performance monitoring, across all asset classes. The firm compiles the performance results for more than 4,500 private partnerships and their more than 62,000 portfolio company investments to publish its proprietary private investments benchmarks, of which the Cambridge Associates LLC U.S. Venture Capital Index? and Cambridge Associates LLC U.S. Private Equity Index? are widely considered to be the industry-standard benchmark statistics for these asset classes. Cambridge Associates has more than 1,000 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; Singapore; Sydney; and Beijing.????Cambridge Associates is recognized as a thought leader, innovator and advocate for institutional investors. For more information about Cambridge Associates, please visit http://www.cambridgeassociates.com.
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