RESEARCH TRIANGLE PARK — The three-year losing streak in venture capital performance has run its course, indicating that a rebound might be coming for investments.

Coming off a miserable year in 2003 when venture firms invested 15 percent less than they did in 2002, the return to “black” territory is welcome news for investors — and firms hoping to raise cash.

“The worst may be over” is how the National Venture Capital Association and its partners announced “positive” one-year returns for VCs.

According to the NVCA and Thomson Venture Economics, all venture capital showed a 1.6 percent positive return in the three-month period ending Sept. 30.

Private equity overall, meanwhile, posted 1.3 percent growth for the 12 months ending in September, In contrast, the 12-month period ending in June showed a negative return of more than 6 percent.

“While the latest performance analysts may indicate a small short term improvement, the movement into positive territory after a three-year hiatus has to be a welcome sign for general partners and institutional partners alike,” said Jesse Reyes, vice president and director of private equity research at Thomson, in a statement.

Venture financing picked up in the final quarter as well, according to figures from the NVCA and PricewaterhouseCoopers. Deals totaled $4.9 billion in the fourth quarter, up from $4.4 billion in the previous three months. But for the year, investments were only $18.2 billion, down sharply from $21.4 billion in 2002, and just a fraction of the investments made at the height of the technology boom.

The good news also spilled over to fund raising. NCVA reported that firms added $5.2 billion in the fourth quarter — its biggest three-month period since 2000.

Exits open

Venture firms have complained loudly since 2000 that the lack of “exits” — initial public offers, mergers and acquisitions based on strong valuations and such — have given them less incentive to invest. But the strong rebound of the stock markets, especially with the Nasdaq back over the 2,000 mark, and the economy are apparently opening up those exits.

The Nasdaq closed at 2,064 on Friday. It’s 52-week low is 1,253. The Dow Industrial Average closed at 10,593, compared to a 52-week low of 7,416.

“We are now beginning to see the IPO and acquisition markets improve and company valuations stabilize,” said Mark Heesen, president of the NVCA. “These trends will positively impact performance over time, but not overnight. We continue to focus on longer term returns as the true measure of private equity performance.”

Reyes said that “improved valuations on companies left in portfolios have mirrored the overall improvement in equity values” such as on the tech-heavy Nasdaq. However, he also pointed out that “technology company valuations remain at significantly lower levels than they were at the time of original investment.”

Tracking the losing streak

Venture reported 11.7 percent growth in the three-month period ending on Sept. 30 of 2000 then went into a tail-spin. The losing streak ran as follows:

Period ending: Return

12-31-0 -15.9

3-31-01 -11.9

6-30-01 -3.8

9-30-01 -13.8

12-31-01 -6.2

3-31-02 –6.0

6-30-02 -8.6

9-30-02 -11.0

12-31-02 -8.2

3-31-03 -3.2

6-30-03 -7.3

The NVCA and Thomson point out that five-year (25.7 percent) and 10-year (25.4 percent) returns on venture investments are “quite strong.”

Cold reality

However, not all the figures were positive.

Venture investments remain in negative territory through three-year time horizons, such as:

Early/Seed: -18.3%, 1 year; -26.3% 3 year

Balanced VC: -0.4% 1 year; -18.3% 3 year

Later stage VC: -39/8% 1 year; 23.1% 3 year

All VC: -17.8% 1 year; -22.7% 3 year.

Lifting the overall return on private equity into positive territory was a 9.9 percent positive return for all buyouts and an 8.7 percent positive return for mezzanine,

All areas of investment show positive returns in the five-year, 10-year and 20-year timeframes.

Those statistics drove home a point stressed by the NVCA’s Heesen: “We continue to focus on longer term returns as the true measure of private equity performance.”

Rick Smith is managing editor of Local Tech Wire.