Long-Term Returns Hurt by Bubble

One-year VC returns looked good at the end of last year, thanks in large part to an active 2004 IPO market, according to private equity performance data released last week by Thomson Venture Economics (publisher of the PE Week) and the National Venture Capital Association.

The year 2004 saw 93 VC-backed IPOs worth $11 billion and 333 acquisitions of venture backed companies for a disclosed value of $15.1 billion, the highest combined value since 2000. Consequently, short-term venture capital performance saw improvements in both the one and three year time horizons.

However, five-year performance for venture capital saw another decline, with a return of -1.3% for the period ended Dec. 31. The decline is due mostly to losses taken by firms that invested during the 1999 to 2000 time period.

The 10- and 20-year horizon returns for venture capital for period were 26% and 15.7%, respectively (see chart, this page). VC and PE asset classes continued to outperform the Nasdaq index and the S&P 500 for the long term.