US VC returns bump along bottom

US venture capital losses levelled off in the third quarter of 2002, but the industry remains in the worst slump in its history, according to the latest data.

( In the year to September 30 2002, US venture capital funds suffered an average loss of 22.3 per cent, according to a study by Venture Economics and the National Venture Capital Association. That was an improvement from an average loss of 27.9 per cent in the year ended June 30, the report said.


According to a report released last week by research firm Cambridge Associates, the net return on US venture capital funds for the quarter was –9.1 per cent, above last quarter’s -10.3 per cent.


 For the year ending September 30, 2002, the net return was –29.4 per cent, below the one-year S&P 500 return of –20.5 per cent and the NASDAQ Composite return of –21.8 per cent at September 30, 2002.


Longer-term returns on venture capital were still healthy; according to the Cambridge Associates figures, the three-year return was 25.1 per cent, and the five-year return was an even more positive 46.7 per cent.


According to Cambridge Associates, in the third quarter of 2002, the net return on private equity investment was –5.2 per cent, down from last quarter’s –3.2 per cent. For the one-year ending September 30, 2002, the net return was –9.2 per cent, above the comparable S&P 500 return.


However, the longer-term picture is less positive. The three-year return is –4.0 per cent, while the five-year return is only 3.7 per cent.


A similar situation prevails in Europe. Venture capital investment in European companies fell 35 per cent to E5.9bn in 2002, from E9bn in 2001, according to figures released today by research group Windmill Reports.


In terms of sector breakdown, software was by far the most popular, with 347 companies, 40 per cent of the total, receiving financing. Approximately E1.5bn was invested in European software firms altogether in 2002.


The second most popular industry sector for venture capitalists was healthcare, with 159 biotech and healthcare companies receiving E1.3bn in venture financing.


The U.K. remained the venture capital centre of Europe in 2002. UK companies raised E1.9bn during the year. Germany took second place with E969m.