Performance of Venture Capital

by Etienne Paresys

  • 04 Sep 2009
  • PE

The venture capital industry has the potential to deliver some of the highest returns amongst private equity investments, but is currently experiencing difficulties. Up to vintage 1997 funds, median IRRs were very healthy, generally posting in the 15-25% range. Since then, however, median IRRs have been much lower. Returns begin to drop off, reaching their lowest point for 1999 vintage funds, which have with a median IRR of -7.1%, making it the vintage year most affected by the dot-com crash. Encouragingly, funds of vintages 2002-2003 show median IRRs around the 5% mark. Since the dot-com crash, realisations have taken longer and these funds have most of their value locked up in unrealised investments, thus valuations should be viewed with some caution. Funds of more recent vintages have not made any significant distributions as yet and have considerable amounts of capital still left to be called. There is a wide variation of returns between venture funds and some managers are still able to generate superior returns. Investors investing in venture capital need to carefully scrutinise investment skills and track records to select the future top quartile venture funds.

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