Venture Performance Perks Up as Bubble Numbers Disappear from Equation

What a difference a year makes, at least when it comes to the venture industry’s 10-year performance numbers.

In recent years, the numbers have been abysmal – a complete embarrassment. At this time last year, for example, the numbers showed that venture firms had returned an average of just 1.3 percent for their investors over the preceding 10-year period, and that was up from losing 4.2 percent for their investors over the 10-year period ending in 2010.

Today, however, as some painfully poor quarters from 2001 and 2002 are elbowed out of the 10-year picture, the venture industry is looking less like an expensive way to lose money and more like an expensive way to make it. Indeed, according to second quarter figures released this morning by Cambridge Associates, 10-year returns for venture firms have risen to 5.3 percent (even while the quarter itself notched a measly .6 percent return, as venture firms saw their public market holdings hammered).

That’s not a whole lot of ammunition for VCs looking to make their case to institutional investors, but it’s better than nothing.

VCs can also point out that according to Cambridge’s newest data, distributions in the second quarter were the highest amount since the fourth quarter of 2010, and that the second quarter marked the fifth time in seven quarters that distributions outpaced contributions by LPs.

And hey, the venture industry’s 20-year returns pretty much murder those of public market indices. As of the second quarter, in fact, venture firms returned an average of 27.9 percent to investors, compared with the average 9.5 percent, 8.6 percent, and 8.3 percent returns enjoyed by investors in the S&P 500, Nasdaq, and DJIA over the same period.

Whether institutional LPs will be interested in numbers that date back to 1992 is another question. Certainly, some are liable to point out that Cambridge’s newest data still gives VCs very little to brag about, particularly when taking into account the numerous other, cheaper ways that they could have achieved similar outcomes.

For starters, the S&P 500 index has also averaged 5.3 percent returns over the last 10 years. Meanwhile, the Nasdaq and DJIA have done even better, returning 7.2 percent and 6 percent to investors over the same period.

For more returns and distributions data, click here, on the Benchmark Report issued October 29.

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