VC boasts strong returns in Q1

Shorter-term venture performance showed significant improvement in Q1 2011, with modest increases in the three-, five- and 10-year periods, says NVCA president Mark Heesen.

US venture capital fund valuations continued to improve in the first quarter of 2011, posting an 18.5 percent return for the 12-month period ending 31 March 2011, a significant increase compared to 13.5 percent for the year ending 31 December 2010, according to data from Cambridge Associates and trade body the National Venture Capital Association.

In addition to the strong returns for the year ending 31 March, venture capital performance was up across the three-, five- and 10-year time horizons. Fifteen year returns were down slightly, from 34.8 percent as of 31 December 2010 to 34.3 percent as of 31 March 2011. The first three months of 2011 represent the second consecutive quarter in which there were double digit returns for the one year time period and slight improvements in the three-, five- and 10-year time horizons.

“Slow and steady improvement has been the name of the game in venture performance for the last several quarters,” president of the Mark Heesen said in a statement. Heesen added that the NVCA expects to see continued improvement in venture performance, thanks in part to a stronger exit environment in the last year.

Limited partners have for several years seen venture capital as almost anathema – an asset class that has consistently underperformed over the past decade – but that may be changing.  Some LPs have been quietly looking into venture again, arguing the environment is ripe to profit from VC investing as the industry has shrunk with many of the subpar managers (finally) disappearing.

The evidence of this resurgent interest in venture can be seen in some of the outsized fundraisings that have taken place recently. During the second quarter of 2011, 37 US venture capital funds raised a total of $2.7 billion, according to Thomson Reuters and the NVCA, representing a 28 percent increase in dollar commitments compared to same period last year but a 23 percent drop in the number of venture funds garnering commitments.

Roughly 50 percent of the $2.7 billion raised for venture in the second quarter of 2011 came from Palo Alto-based Accel Partners, whose second growth fund raised $875 million and eleventh fund raised $475 million.

As of 31 March, Cambridge’s database is comprised of 1,308 venture funds formed between 1981 and 2010.