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NVCA NEWS: VC Fund Performance Continues to Strengthen amid Growth Prospects and Exit Markets

Venture Capital Outperformed DJIA, NASDAQ Composite and S&P 500 in Q1 2014

Arlington, VA, July 31, 2014 Venture capital fund performance continued to make gains across most time horizons as of March 31, 2014, according to the National Venture Capital Association’s (NVCA) performance benchmark, the Cambridge Associates LLC U.S Venture Capital Index®.  Despite returns being down on a quarter over quarter basis, the 1-, 5-, 10- and 20-year horizons all showed higher returns compared to the previous quarter.  The 15-year horizon was down and the 3-year horizon was unchanged.  Compared to other benchmarks, venture capital outperformed the DJIA, NASDAQ Composite and the S&P 500 during Q1 2014.  In addition, venture capital outperformed the other leading benchmarks during the 1-, 3-, 10-, 15- and 20-year time horizons.  However, during the 5-year time horizon, the DJIA, NASDAQ Composite and the S&P 500 all outperformed venture capital.

“For the second quarter in a row, venture capital outperformed the marquee benchmarks of Wall Street, suggesting strong future returns to limited partners that can be reinvested in the next generation of entrepreneurs,” said Bobby Franklin, President and CEO of NVCA.  “This is the result of venture capitalists deploying capital to and mentoring high-growth companies that are disrupting the status quo and making strong exits through acquisition and going public.  With limited partners continuing to see their investments bear fruit, we are hopeful the fundraising environment will continue to pick up steam in the coming quarters, which will finance and support the next crop of American companies.”

“We continue to see a sustained increase in the venture capital index returns across nearly all time periods.  The 10-year index reached 10% in March, the first time that index has been in double-digit positive territory since 2009 and a nice recovery from its low point of -4.6% in the third quarter of 2010,” said Peter Mooradian, Managing Director, Venture Capital Research at Cambridge Associates.

U.S. Venture Capital Index Returns

Cambridge Associates LLC U.S. Venture Capital Index®1 for the periods ending

Qtr.

1 Year

3 Years

5 Years

10 Years

15 Years

20 Years

March 31, 2014

          4.9

        30.5

        15.3

        14.1

        10.0

        18.7

        31.7

December 31, 2013

        11.9

        27.2

        15.3

        12.5

          9.7

        22.6

        30.8

September 30, 2013

          6.5

        15.1

        14.4

          7.5

          8.6

        26.1

        30.0

June 30,2013

          4.3

          8.9

        13.5

          5.7

          7.8

        22.8

        30.1

March 31,2013

          2.5

          4.9

        12.0

          4.8

          7.4

        22.8

        29.6

31-Mar-14

U.S. Venture Capital  – Early Stage Index1

          4.7

        30.9

        16.0

        14.5

          9.3

        82.1

        47.8

U.S. Venture Capital – Late & Expansion Stage Index1

          3.6

        33.4

        14.7

        18.5

        12.7

          9.4

        11.7

U.S. Venture Capital – Multi-Stage Index1

          5.7

        29.1

        14.4

        12.3

        10.6

          8.2

        13.8

U.S. Growth Equity1

          3.2

        24.8

        15.8

        18.1

        13.6

 NM

 NM

 

DJIA

         (0.2)

        15.7

        13.0

        19.9

          7.5

          6.0

        10.3

NASDAQ Composite*

          0.5

        28.5

        14.7

        22.4

          7.7

          3.6

          9.0

S&P 500

          1.8

        21.9

        14.7

        21.2

          7.4

          4.5

          9.5

Sources: Cambridge Associates LLC, Dow Jones Indices, Standard & Poor’s, and Thomson Reuters Datastream.

The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,494 U.S. venture capital funds, including fully liquidated partnerships, formed between 1981 and 2013, and the U.S. Growth Equity Index is based on data compiled from 156 U.S. growth equity funds, including fully liquidated funds, formed between 1986 and 2013.

¹ Pooled end-to-end return, net of fees, expenses, and carried interest.

*Capital change only.

U.S. Venture Capital mPME Analysis

 

CA Index

1-Year

3-Year

5-Year

10-Year

15-Year

20-Year

25-Year

30-Year

Cambridge Associates LLC U.S Venture Capital Index®1

30.51

15.31

14.15

10.05

18.66

31.71

21.08

17.35

mPME Analysis2

S&P 500 Index

       21.85

       14.42

       20.88

         8.04

         6.10

         9.02

         9.73

       10.53

Value-Add (bps)

866

89

-673

201

1256

2269

1134

682

Russell 2000® Index

25.04

12.69

24.17

9.02

9.33

9.76

10.11

10.13

Value-Add (bps)

548

262

-1003

103

933

2195

1097

721

Russell 3000® Index

       22.61

       14.32

       21.66

         8.44

         6.70

         9.22

         9.90

       10.53

Value-Add (bps)

791

99

-751

160

1196

2249

1117

681

Sources: Cambridge Associates LLC, Frank Russell Company, Standard & Poor’s and Thomson Reuters Datastream.

The Cambridge Associates LLC U.S. venture capital Index® is an end-to-end calculation based on data compiled from 1,494 U.S. venture capital funds (962 early stage, 163 late & expansion stage, 363 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2013.

1 Pooled end-to-end return, net of fees, expenses, and carried interest.

2 CA Modified Public Market Equivalent (mPME) replicates private investment performance under public market conditions. The public index’s shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME NAV is a function of mPME cash flows and public index returns. “Value-Add” shows (in basis points) the difference between the actual private investment return and the mPME calculated return. Refer to Methodology page for details.

CA Index

1-Year

3-Year

5-Year

10-Year

Cambridge Associates LLC U.S Growth Equity Index1

24.80

15.80

18.14

13.57

mPME Analysis2

Russell 2000® Index

       24.97

       12.94

       23.65

         9.48

Value-Add (bps)

-17

285

-551

409

Russell 2500™ Index

23.91

13.62

24.73

10.29

Value-Add (bps)

89

217

-659

329

Russell 3000® Index

       22.47

       14.46

       21.30

         8.77

Value-Add (bps)

232

134

-316

480

Russell Midcap® Index

23.31

14.03

24.89

10.67

Value-Add (bps)

148

177

-675

290

S&P 500 Index

       21.72

       14.54

       20.56

         8.37

Value-Add (bps)

308

126

-242

520

Constructed Index: NASDAQ Composite Price Index/ NASDAQ Composite Total Return3

30.34

15.77

23.07

10.00

Value-Add (bps)

-554

3

-493

357

Sources: Cambridge Associates LLC, Frank Russell Company, Global Financial Data, Inc., Standard & Poor’s and Thomson Reuters Datastream.

The index is an end-to-end calculation based on data compiled from 153 U.S. growth equity funds, including fully liquidated partnerships, formed between 1986 and 2013.

1 Pooled end-to-end return, net of fees, expenses, and carried interest.

2 CA Modified Public Market Equivalent (mPME) replicates private investment performance under public market conditions. The public index’s shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME NAV is a function of mPME cash flows and public index returns. “Value-Add” shows (in basis points) the difference between the actual private investment return and the mPME calculated return. Refer to Methodology page for details.

3Constructed Index: Data from 1/1/1986 to 10/31/2003 represented by NASDAQ Price Index. Data from 11/1/2003 to present represented by NASDAQ Composite.

Vintage Year Return Ratios

The following chart lists the ratio between the dollars paid into venture capital funds by limited partners (LPs) and the dollars distributed to them by vintage year.  For example, the 2002 vintage year funds have distributed cash of 0.72 times the amount of capital paid in by LPs and the residual value is 0.35 times the paid-in capital; the total value multiple is therefore 1.02 times.  It is important to note that the residual value is unrealized and will change as companies exit the portfolio, are re-valued, or are written off.  The 2007 and 2010 vintage year funds show the most positive ratio of the last decade, with returns at 1.78 and 1.72 (respectively) the capital contributed by LPs, should those funds realize the value of what remains in the portfolio.  More recent vintage years have yet to return significant cash to LPs as most funds do not have the opportunity to begin returning capital until after year five.

Vintage Year

Distribution to Paid in Capital (DPI)

Residual Value to Paid in Capital (RVPI)

Total Value to Paid in Capital (TVPI)

1981-1995

3.39

0.01

3.40

1996

4.89

0.02

4.91

1997

3.08

0.03

3.11

1998

1.44

0.06

1.50

1999

0.87

0.10

0.97

2000

0.80

0.25

1.05

2001

0.84

0.34

1.18

2002

0.72

0.30

1.02

2003

1.00

0.72

1.72

2004

0.82

0.78

1.60

2005

0.49

0.87

1.36

2006

0.48

1.02

1.50

2007

0.49

1.29

1.78

2008

0.31

1.25

1.56

2009

0.23

1.42

1.65

2010

0.20

1.52

1.72

2011

0.04

1.21

1.25

2012

0.01

1.18

1.19

2013

0.00

0.95

0.95

Total All Vintage Years

1.11

0.56

1.67

Additional Performance Benchmarks

To view the full, comprehensive report, which includes tables on additional time horizons, vintage years, and industry returns, please visit the Cambridge Associates or NVCA websites.

Cambridge Associates derives its U.S. venture capital benchmarks from the financial information contained in its proprietary database of venture capital funds. As of March 31, 2014, the database included 1,494 venture funds formed from 1981 through 2013.

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About NVCA

Venture capitalists are committed to funding America’s most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth.  As the voice of the U.S. venture capital community, the National Venture Capital Association empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment.  As the venture community’s preeminent trade association, the NVCA serves as the definitive resource for venture capital data and unites its nearly 400 members through a full range of professional services.  For more information about the NVCA, please visit www.nvca.org.

About Cambridge Associates

Founded in 1973, Cambridge Associates is a provider of independent investment advice and research to institutional investors and private clients worldwide. Today the firm serves over 950 global investors and delivers a range of services, including investment advisory, outsourced portfolio solutions, research services and tools (Research Navigatorsm and Benchmark Calculator), and performance monitoring, across asset classes. The firm compiles the performance results for more than 5,700 private partnerships and their over 65,000 portfolio company investments to publish its proprietary private investments benchmarks, of which the Cambridge Associates LLC U.S. Venture Capital Index® and Cambridge Associates LLC U.S. Private Equity Index® are widely considered to be among the standard benchmark statistics for these asset classes. Cambridge Associates has been selected to provide data and to develop and maintain customized industry benchmarks for a number of prominent industry associations, including the Institutional Limited Partners Association (ILPA), Australian Private Equity & Venture Capital Association Limited (AVCAL); the African Venture Capital Association (AVCA); the Canada Venture Capital and Private Equity Association (CVCA);the Hong Kong Venture Capital and Private Equity Association (HKVCA); the Indian Private Equity and Venture Capital Association (IVCA); the New Zealand Private Equity & Venture Capital Association Inc. (NZVCA); the Asia Pacific Real Estate Association (APREA); and the National Venture Capital Association (NVCA). Cambridge also provides data and analysis to the Emerging Markets Private Equity Association (EMPEA). Cambridge Associates has more than 1,100 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; Singapore; Sydney; and Beijing. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control.  For more information about Cambridge Associates, please visit www.cambridgeassociates.com.

Ben Veghte

Vice President, Communications

National Venture Capital Association (NVCA)

1655 Fort Myer Drive, Suite 850 | Arlington, VA 22209

Direct: 703-778-9292 | Cell: 202-841-6838


Posted July 31, 2014 in NVCA NEWS | newsfeature | News