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US venture posts double figure returns for first time since the bubble burst

US venture capital posted a one-year return of 15.7 per cent in the first quarter of 2004, the first positive double-digit performance since the end of 2000. Three-year venture capital returns, though still negative, improved to -13.3 per cent up from -18.9 per cent in the previous quarter, according to Thomson Venture Economics and the National Venture Capital Association (NVCA).

The five, ten and 20-year returns remained steadfast at 22, 26 and 15.7 per cent respectively. The total private equity asset class posted a 23.4 per cent one-year performance in the first quarter. This represents the second consecutive quarter of continuous growth.

'While these numbers do not yet reflect the most recent flurry of IPO activity, it is a continued validation that the venture capital and buy-out industries are getting healthier,' said Jesse Reyes, vice president of global research at Thomson Venture Economics.

'The 13 venture backed companies that went public in the first quarter was a considerable improvement over the most recent quarters. Given the correlation between venture and public market returns, the industry has been the beneficiary of good public equity markets and healthier company exits,' he said.

In addition to the improving health of the IPO market, the venture capital industry is also experiencing higher valuations in acquisition activity.

However, not all indicators are yet positive. Many companies that received funding during the boom years still face challenges building momentum. For example, many IT companies funded during this period continue to encounter sustainability problems despite recent improvements in revenue generation and higher valuations for the companies themselves.

'While we are pleased to see an improving IPO and acquisitions market, and increasing distributions being made to limited partners today, we must remember that venture capital is a long-term commitment where five, ten and 20 year returns are the most meaningful,' said Mark Heesen, president of the NVCA. 'These are the horizons that investors use to measure success. Long term performance and growth, not short term gains, are what investors demand and will serve as the basis for determining which firms will be successful in raising new funds in 2004 and 2005.'

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