VC Performance Declines in ’08

The National Venture Capital Association has just posted the most recent venture capital performance data available. It’s not as bleak as you might expect, largely because the data extends only through September 30, 2008. According to the organization:

Turmoil in the broader capital markets and the closed IPO window drove the one-year all venture private equity performance index (PEPI) into negative territory to -1.6 percent, with a 6.9 percentage point decrease from the period ending June 30, 2008. Historically, short-term horizons show significant fluctuations quarter over quarter based on current exit market conditions. The next largest consecutive quarterly change occurred in the three-year time horizon where all venture PEPI decreased by 1.9 points quarter-over-quarter. Five-year performance posted a modest decline from the previous quarter, decreasing .2 percentage points. Ten and Twenty-year performance figures showed small quarter-over quarter increases of .8 and .2 percentage points to 17.3 percent and 17.1 percent, respectively.

In the release, NVCA President Mark Heesen attributes the performance numbers to the “shuttered IPO window and slowing M&A market for venture-backed companies,” adding that the “longer term performance will hold steady for the time being, but a prolonged capital markets crisis will begin to impact these numbers ultimately as well.”

Amazingly, the NVCA goes on to note that venture returns outperformed the public market indices, Nasdaq, and the S&P 500 through the end of the third quarter of last year. I say amazingly not because it’s an audacious comparison but because I actually had no idea that venture returns had so consistently outperformed the Nasdaq and S&P 500 over the years. (And the returns are net to investor after management fees and carried interest.)

Check this out:

Thomson Reuters’ US Private Equity Performance Index (PEPI) Investment Horizon Performance through 9/30/2008

    Fund Type                             1 Yr   3 Yr    5 Yr   10 Yr   20 Yr
    Early/Seed VC                        0.2    3.8      5.1   37.2    21.6
    Balanced VC                          -6.4    7.4    11.5  14.9    14.7
    Later Stage VC                       8.6  12.0    10.5    8.9    14.7
    All Venture                           -1.6     6.6     8.6   17.3   17.1
    NASDAQ                              -21.4   -1.1     3.1     2.1     8.7
    S&P 500                              -22.0   -1.7     3.2     1.4     7.5
    All VC (thru 9/30/08)             5.3     8.5     8.8   16.5   16.9
    All VC (thru 9/30/07)           26.6   11.0     6.8   17.8   16.4

    Source: Thomson Reuters/National Venture Capital Association

    * The Private Equity Performance Index is based on the latest quarterly
      statistics from Thomson Reuters’ Private Equity Performance Database
      analyzing the cashflows and returns for over 1941 US venture capital
      and private equity partnerships with a capitalization of $828
      billion.  Sources are financial documents and schedules from Limited
      Partner investors and General Partners.  All returns are calculated
      by Thomson Reuters from the underlying financial cashflows.  Returns
      are net to investor after management fees and carried interest.