Performance returns strong in Q3

The performance returns of private equity funds across all time horizons in Q3 demonstrate that good and bad times come and go. Long-term performance enjoyed 20-year returns of 16.5% in venture capital and 13.3% in buyouts.

For the 10-year horizon, venture capital returned 26.5% and buyouts returned 8.7% (see chart, below), according to Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association (NVCA). The performance numbers are based on an analysis of cash flows and returns from some 1,750 U.S.-based venture and private equity partnerships.

Short-term performance was considerably more volatile, with one-year venture returns jumping from 7.8% in Q2 2005 to 19.7% in Q3. For the same one-year horizon, buyout funds returned 32.5% in Q3 compared to 26.9% in Q2.

NVCA President Mark Heesen cautions investors to wait before popping off corks of Dom Perignon.

“Measuring venture capital performance is like watching the Tour de France,” Heesen says. “It is a long term event that can’t be analyzed by looking at short-term developments. As an industry, we are heavily focused on the 10- and 20-year returns because those are the numbers that are ultimately realized.”

The performance returns were boosted thanks to an IPO market that saw a little spike during Q3 as 19 VC-backed companies went public.

Still, five- year performance for the venture industry is posting a return of -9.3% for the period ended Sept. 30. This continued downbeat return stems mostly from the losses made during the closing stages of the Internet bubble era.

Thus, the performance of younger funds over the next few years will signify whether the post-bubble strategies have hit their mark.