VC Returns Post Modest Gains –

One-year VC fund returns through Q1 2004 posted a 15.7% gain, while three-year returns came in at -13.3%, according to VC fund performance data released in late July by Thomson Venture Economics (publisher of VCJ) and the National Venture Capital Association.

Despite the negative three-year returns, the figure is an improvement from the -18.9% for three-year returns in the prior quarter.

Meanwhile, five-, 10- and 20-year returns remained steadfast at 22%, 26% and 15.7%, respectively.

“While these numbers do not yet reflect the most recent flurry of IPO activity, it is a continued validation that the venture capital and buyout industries are getting healthier,” says 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.”

In addition to the improving health of the IPO market, the venture industry is also seeing higher valuations in acquisition activity. Yet, despite the uptick, experts do not see these signs as an indication of another bubble, especially given the maturity of the companies that are exiting.

Companies that received funding from 1998 to 2000 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.