Venture Capital Fund Performance Continues to Strengthen Amid Growth Prospects and Exit Market
Venture Capital Outperformed DJIA, NASDAQ Composite and S&P 500 in Q1 2014
Arlington, VA, July 31, 2014 – Venture capital fund performance continued to make gains across most time horizons as of March 31, 2014, according to the National Venture Capital Association’s (NVCA) performance benchmark, the Cambridge Associates LLC U.S Venture Capital Index®. Despite returns being down on a quarter over quarter basis, the 1-, 5-, 10- and 20-year horizons all showed higher returns compared to the previous quarter. The 15-year horizon was down and the 3-year horizon was unchanged. Compared to other benchmarks, venture capital outperformed the DJIA, NASDAQ Composite and the S&P 500 during Q1 2014. In addition, venture capital outperformed the other leading benchmarks during the 1-, 3-, 10-, 15- and 20-year time horizons. However, during the 5-year time horizon, the DJIA, NASDAQ Composite and the S&P 500 all outperformed venture capital.
“For the second quarter in a row, venture capital outperformed the marquee benchmarks of Wall Street, suggesting strong future returns to limited partners that can be reinvested in the next generation of entrepreneurs,” said Bobby Franklin, President and CEO of NVCA. “This is the result of venture capitalists deploying capital to and mentoring high-growth companies that are disrupting the status quo and making strong exits through acquisition and going public. With limited partners continuing to see their investments bear fruit, we are hopeful the fundraising environment will continue to pick up steam in the coming quarters, which will finance and support the next crop of American companies.”
“We continue to see a sustained increase in the venture capital index returns across nearly all time periods. The 10-year index reached 10% in March, the first time that index has been in double-digit positive territory since 2009 and a nice recovery from its low point of -4.6% in the third quarter of 2010,” said Peter Mooradian, Managing Director, Venture Capital Research at Cambridge Associates.
U.S. Venture Capital Index Returns
Sources: Cambridge Associates LLC, Dow Jones Indices, Standard & Poor’s, and Thomson Reuters Datastream.
The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,494 U.S. venture capital funds, including fully liquidated partnerships, formed between 1981 and 2013, and the U.S. Growth Equity Index is based on data compiled from 156 U.S. growth equity funds, including fully liquidated funds, formed between 1986 and 2013.
¹ Pooled end-to-end return, net of fees, expenses, and carried interest.
*Capital change only.
U.S. Venture Capital mPME Analysis
Sources: Cambridge Associates LLC, Frank Russell Company, Standard & Poor’s and Thomson Reuters Datastream.
The Cambridge Associates LLC U.S. venture capital Index® is an end-to-end calculation based on data compiled from 1,494 U.S. venture capital funds (962 early stage, 163 late & expansion stage, 363 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2013.
1 Pooled end-to-end return, net of fees, expenses, and carried interest.
2 CA Modified Public Market Equivalent (mPME) replicates private investment performance under public market conditions. The public index’s shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME NAV is a function of mPME cash flows and public index returns. “Value-Add” shows (in basis points) the difference between the actual private investment return and the mPME calculated return. Refer to Methodology page for details.
Sources: Cambridge Associates LLC, Frank Russell Company, Global Financial Data, Inc.,
Standard & Poor’s and Thomson Reuters Datastream.
The index is an end-to-end calculation based on data compiled from 153 U.S. growth equity funds, including fully liquidated partnerships, formed between 1986 and 2013.
1 Pooled end-to-end return, net of fees, expenses, and carried interest.
2 CA Modified Public Market Equivalent (mPME) replicates private investment performance under public market conditions. The public index’s shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME NAV is a function of mPME cash flows and public index returns. “Value-Add” shows (in basis points) the difference between the actual private investment return and the mPME calculated return. Refer to Methodology page for details.
3Constructed Index: Data from 1/1/1986 to 10/31/2003 represented by NASDAQ Price Index. Data from 11/1/2003 to present represented by NASDAQ Composite.
Vintage Year Return Ratios
The following chart lists the ratio between the dollars paid into venture capital funds by limited partners (LPs) and the dollars distributed to them by vintage year. For example, the 2002 vintage year funds have distributed cash of 0.72 times the amount of capital paid in by LPs and the residual value is 0.35 times the paid-in capital; the total value multiple is therefore 1.02 times. It is important to note that the residual value is unrealized and will change as companies exit the portfolio, are re-valued, or are written off. The 2007 and 2010 vintage year funds show the most positive ratio of the last decade, with returns at 1.78 and 1.72 (respectively) the capital contributed by LPs, should those funds realize the value of what remains in the portfolio. More recent vintage years have yet to return significant cash to LPs as most funds do not have the opportunity to begin returning capital until after year five.
Additional Performance Benchmarks
To view the full, comprehensive report, which includes tables on additional time horizons, vintage years, and industry returns, please visit the Cambridge Associates or NVCA websites.
Cambridge Associates derives its U.S. venture capital benchmarks from the financial information contained in its proprietary database of venture capital funds. As of March 31, 2014, the database included 1,494 venture funds formed from 1981 through 2013.
