Global venture returns stayed strong in Q1, while time to liquidity fell: report

Venture funds’ first-quarter investment multiples dipped from the record Q4 figures but stayed strong.

That’s according to PE-software provider eFront’s report on first-quarter returns, risks and liquidity of venture funds, released this week.

Venture funds recorded Q1 TVPI multiples of 1.45x, down from 1.49 in fourth-quarter 2017.

At the same time, selection risks are dropping, and the dispersion of performance between the top 5 percent and bottom 5 percent of venture funds declined. The dispersion was 1.54x in the first quarter of 2018 against a high of 1.96x in Q4 2015.  

Although that’s good news for investors, the report says, the narrowing performance gap means that top funds may find it more difficult to continue to outperform.

And time to liquidity is dropping: In Q1 it returned to its long-term average of 3.3 years.

This is a “surprisingly short” holding period for venture funds, but it may be related to a shift toward later-stage investments, the report says.

The performance of venture funds began to level off in the first quarter, although performance varied significantly by region and vintage year.

Among U.S. venture funds, vintage-year 2009 is expected to underperform the long-term average, while 2010 is above average.

Overall, U.S. venture funds typically underperform their long-term average, partially because of the so-called golden years of the 1990s during the dot-com boom.

Western Europe funds from years 2009 to 2014 are strongly outperforming the long-term average, partly because funds in that region do not include the 1990s’ golden years.

But recent Western European venture funds recorded declining multiples for Q1 2018, indicating possible declining asset prices, the report notes.

Action Item: To access the full eFront report, go to https://bit.ly/2KNfLtP.