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Local Tech Wire
RESEARCH TRIANGLE PARK, N.C. – Returns on investment for venture capitalists improved slightly in the third quarter but continue to be far, far below the profits made at the height of the “dot com” and telecom booms a decade ago.
In the third quarter, returns improved 2.3 percent, compared with a 0.2 percent increase through June 30 and a 2.9 percent decline a year earlier, according to Cambridge Associates and the
Overall, venture returns have generally been higher than those in the Dow Jones, Nasdaq and S&P 500, according to the data. However, in the third quarter, the Dow Jones average soared 15.8 percent, the Nasdaq 15.7 percent and the S&P 500 15.6 percent.
One-year returns improved slightly but were still off 12.4 percent, compared with a decline of 17.1 percent in June and a slight 0.9 percent decline through September 2008.
According to the Cambridge Associates data, 10-year returns plunged to 8.4 percent from 14.3 percent in June and from 40.2 percent a year earlier
Five-year returns fell to 4.9 percent from 5.7 percent in June and 10.7 percent in the same time period of 2008.
Three-year returns slipped to 1.3 percent, matching the June figure but were substantially below the 10.2 percent through September of 2008.
Fifteen-year and 20-year returns improved to 36.6 percent and 23.1 percent respectively from 36.3/33.3 and 22.7/22.2 percent the previous June and September.
“It has taken a full decade after the technology bubble burst for the venture industry to fully realize the impact of that era and its aftermath,” Mark Heesen, president of the NVCA, said in a statement. “The significant returns created by the robust exit markets of the late1990s have carried the industry for a long period of time.
“The new reality is much more somber for many venture firms. There are still healthy returns to be made in venture capital, but until the venture community sees a more vibrant exit market, we do not expect marked improvement overall,” he added.
Future returns will be determined by initial public offerings of stock plus mergers and acquisitions. The IPO market has been extremely slow the past two years.
"The exit markets have displayed some welcome signs of life in recent months, and we have noted a more upbeat outlook among a number of (general partners) with respect to potential exits,” Peter Mooradian of Cambridge Associates said in a statement. “That said, exits have not recovered to a level that can support healthy venture capital returns, and it remains to be seen if recent activity will evolve into more sustainable momentum in 2010."
The Cambridge Associates data is based on information about 1,287 venture funds from 1981 through 2009 with a combined value of nearly $94 billion.