News Column

Venture Capital Fund Performance Continues to Strengthen Amid Improving Exit Market

May 28, 2014



ARLINGTON, Va., May 28 -- The National Venture Capital Association issued the following news release:

Venture capital fund performance continued to make gains across most time horizons as of December 31, 2013, according to the National Venture Capital Association's (NVCA) performance benchmark, the Cambridge Associates LLC U.S Venture Capital Index. The quarterly, 1-, 3-, 5- and 10-year horizons all showed higher returns with the 15-year horizon down from the previous quarter and the 20-year horizon unchanged. Of note, the quarterly, 1-year and 5-year horizons nearly doubled to 11.9%, 27.2% and 12.5% respectively.

Compared to other benchmarks, venture capital outperformed the DJIA, NASDAQ Composite and the S&P 500 during Q4 2013. Despite besting them for the quarter, the 1-, 3-, and 5-year returns were outperformed by DJIA, NASDAQ Composite and S&P 500. The 10-, 15- and 20-year venture capital performance horizons, however, continue to outperform the other benchmarks.

"Driven by a strengthening exit market, venture capital fund performance continues to improve quarter after quarter," said Bobby Franklin, President and CEO of NVCA. "This is not only good for venture investors but for the overall economy, because when venture capitalists produce good returns and distribute capital back to investors that capital can become available for reinvestment in the next crop of great entrepreneurial companies just getting off the ground."

"While a favorable exit environment has driven strong performance for LPs for several quarters, the recent pullback on tech equities and its dampening impact on the IPO market is a stark reminder of how volatile it can be. The question is whether this is a temporary pause or something more sustained," said Peter Mooradian, Managing Director, Venture Capital Research at Cambridge Associates.

U.S. Venture Capital Index Returns

See table here (http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=1059)

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 1,493 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 153 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

See table here (http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=1059)

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 1,493 U.S. venture capital 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.

See table here (http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=1059)

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 0.68 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 1.03 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 1.73 and 1.69 (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.

See table here (http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=1059)

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 December 31, 2013, the database included 1,493 venture funds formed from 1981 through 2013.

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