Venture Capital Outperformed Major Stock Indices during Third Quarter of 2014
WASHINGTON, DC – Venture capital fund performance continues to be strong across most time horizons as of September 30, 2014, according to the National Venture Capital Association’s (NVCA) Performance Benchmark, the Cambridge Associates LLC U.S. venture Capital Index®. Although returns were down for the third quarter as well as the 1-year horizon, returns were greater in the 3- and 5-year horizons. Looking at longer time horizons, returns for the 10- and 15-year horizons were down from the previous quarter and the 20-year horizon was up slightly from the second quarter of 2014. Compared to other benchmarks, venture capital outperformed the DJIA, NASDAQ Composite and S&P 500 during the third quarter of 2014 as well as the 1-year horizon. While all three major stock indices tied or outperformed venture during the 3- and 5-year horizon, venture capital outperformed the DJIA, NASDAQ Composite and S&P 500 during the 10-, 15- and 20-year horizons.
“Driven by a strong exit market for venture-backed companies on the cutting edge of innovation, venture capital continues to prove its worth as an investible and strong-performing asset class,” said Bobby Franklin, President and CEO of NVCA. “As a testament to the long time horizon for venture investing, venture continues to show strong returns over longer time horizons, besting many of the major stock indices on a consistent basis.”
“Venture capital performance was down slightly in the third quarter but the asset class continues to outperform in the more meaningful longer-term time horizons,” said Peter Mooradian, Managing Director, Venture Capital Research at Cambridge Associates. “Strong performance has contributed to renewed interest in the asset class with 2014 fundraising approaching levels last seen before the 2008 financial crisis.”
U.S. Venture Capital Index Returns
The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,522 U.S. venture capital funds, including fully liquidated partnerships, formed between 1981 and 2014 and the U.S. Growth Equity Index is based on data compiled from 164 U.S. growth equity funds, including fully liquidated funds formed between 1986 and 2014.
1 Pooled end-to-end return, net of fees, expenses, and carried interest.
*Capital change only.
U.S. Venture Capital mPME Analysis
The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,522 U.S. venture capital funds (971 early stage, 170 late & expansion stage, 375 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2014.
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, Standard & Poor’s and Thomson Reuters Datastream.
The index is an end-to-end calculation based on data compiled from 164 U.S. growth equity funds, including fully liquidated partnerships, formed between 1986 and 2014.
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.
3 Constructed 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.
Sources: Cambridge Associates LLC, Frank Russell Company, Global Financial Data, Inc., Standard & Poor’s and Thomson Reuters Datastream.
Vintage Year Returns Ratio
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 0.30 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 June 30, 2014, the database included 1,508 venture funds formed from 1981 through 2014.
