Venture returns dip in second quarter

Venture capital funds returned 5.1% over a one-year time horizon, down from 13% for the first quarter of 2008, according to an industry index. The asset class still outperformed the public markets, with later-stage funds leading the way in the shorter term.

Venture capital returns dropped across nearly all time horizons in the second quarter of 2008, according to a National Venture Capital Association and Thomson Reuters index.

For the 12 month period ending on 30 June, venture funds produced an average return of 5.1 percent for investors, down from 13.3 percent over the same period last quarter and 25.5 percent for the second quarter of 2007.

Performance also declined across the three year, five year and 10 year time horizons when compared to the first quarter of 2008, owing primarily to the dearth of exit options that first confronted venture firms this spring and that has only been exacerbated by the financial crisis of the past two months.

The second quarter of 2008 yielded no initial public offerings for venture-backed companies, the first time that had happened in 30 years.

Despite the performance downturn, the NVCA index still outperformed the NASDAQ and S&P 500 across all time horizons, with venture funds beating the former by roughly 18 percentage points over the last year.

Later-stage venture funds led balance and seed-stage funds over the one-year and three-year time frames, posting returns of 15.3 percent and 12.4 percent, respectively. Over the 10 year and 20 year time frames, seed-stage funds returned 32.9 percent and 21.4 percent, respectively.

The NVCA performance figures were culled from the Private Equity Performance Index, which analyses the cash flows and returns for over 1,941 US venture and private equity partnerships with a combined capitalisation of $828 billion.