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Venture capital short term performance improves in Q2 200502/05/2006. Source: Thomson Venture Economics, NVCA.
 US long term private equity returns continue to outperform public markets, finds the NVCA and Thomson Venture Economics, with the ten and 20 year horizons remaining the strongest benchmark for the venture industry.
Short term venture capital performance showed signs of improvement at the close of the second quarter of 2005 with increases in the one and three year investment horizons, according to Thomson Venture Economics and the US National Venture Capital Association.
The ten and twenty year horizons remain the strongest benchmark for the venture industry and are currently returning 25.8 per cent and 16.0 per cent respectively for the period ending 30 June 2006. For the same time horizon, buy-out funds continued their sturdy performance with returns of 9.0 per cent and 13.8 per cent.
“Venture capital returns remain in line with expectations, both in the short and the long term,” said Mark Heesen, president of the NVCA. “To stay the course of outperforming the public markets, we will be looking for a widening of the IPO window in the coming months and the continued strength of the M&A market for the remainder of the year.”
Despite a weak IPO market during the second quarter with only ten venture backed companies going public, the venture-backed mergers and acquisitions market produced solid results with companies being acquired at high values. The mergers and acquisitions market provides another avenue for general partners to exit their investments and provide distributions back to limited partners.
Five year performance for venture capital still is posting a negative return of -6.3 per cent for the period ending 30 June 2005. This continued negative return is due to the remaining losses taken by firms that made investments in the closing stages of the Internet bubble era.
“Short term performance is always going to be volatile regardless of the period under review. What will be interesting to watch in the next few years is the five year performance return, as the bubble year vintage funds become fully realized. At that point we could very well see a jump in the five year return, reflecting the firms’ new investment strategies for the post-bubble era,” added Joshua Radler, Assistant Project Manager of Thomson Venture Economics.
The Private Equity Performance Index is based on the latest quarterly statistics from Thomson Venture Economics’ Private Equity Performance Database analyzing the cashflows and returns for over 1750 US venture capital and private equity partnerships with a capitalization of $585 billion. Sources are financial documents and schedules from Limited Partners investors and General Partners. All returns are calculated by Thomson Venture Economics from the underlying financial cashflows. Returns are net to investors after management fees and carried interest. Buyout funds sizes are defined as the following: Small: 0-250 $Mil, Medium: 250-500 $Mil, Large: 500-1000 $Mil, Mega: 1 Bil +
The National Venture Capital Association (NVCA) represents approximately 475 venture capital and private equity firms. 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. For more information about the NVCA, visit www.nvca.org
Thomson Venture Economics, a Thomson Financial company, is the foremost information provider for equity professionals worldwide. For more information about Venture Economics, visit www.ventureeconomics.com
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