NEWARK,The return on investment for venture capital and private equity firms continues to be dismal, according to the latest figures from the National Venture Capital Association and Thomson Venture Economics.

Annual returns now have dropped for eight consecutive quarters as part of the aftereffects of the “dot com” and technology balloon that exploded in 2000.

Venture firms have been hit the worst by the decline with 20 percent or more losses each of the past two years, NVCA and Thomson said.

As of Dec. 31, early and seed stage VC investments showed returns of (-)27.6 percent for one year and (-4.7) percent for three years. Five-year (51.4), 10-year (34.9) and 20-year (20.4) investments showed positive returns.

Balanced VC returns showed losses of 22.8 and 8 percent over the last two years but 14 percent or more positive returns for five-, 10- and 20-year investments.

Later-stage VC investments were down 15.7 percent for one year and 8.5 percent for three years. Five-, 10- and 20-year investments showed returns of 10.6 percent or more.

All venture rounds were down 23.3 percent in 2002. Buyouts dropped 5.5 percent, mezzanine rounds dropped 1.7 percent and all private equity lost 11 percent.

NVCA and Thomson attributed the losses to “scarce” exit opportunities and a “lifeless” initial public offering market.

“The 2½ year downturn in venture and private equity returns are not surprising, given what has been going on in the public markets,” said Jesse Reyes, vice president of Thomson Venture Economics. “The tide seems to have lowered all ships.”

But Reyes isn’t about to write off the markets.

“The inevitable winnowing process that this will create will ultimately leave a much leaner but probably more robust investment market for private equity investing,” he said. “The fact that 20-year returns for early and seed stage funds are still above 20 percent demonstrates that it is not an investment asset class for the short-term mind set. While their returns are probably the most volatile, they ultimately have demonstrated the best long-term performance.”


Thomson Financial: