US VC returns up

The first quarter of 2004 posted a double digit positive venture capital one year return at 15.7% for the first time since the year end 2000, according to Thomson Venture Economics and the National Venture Capital Association (NVCA). Three year venture capital returns, although still negative improved to -13.3% up from -18.9% in the previous quarter. Five, ten and 20 year returns remained steadfast at 22%, 26% and 15.7% respectively. The total private equity asset class (venture capital, buyouts and mezzanine funds) posted a 23.4% one year performance in the first quarter representing the second consecutive quarter of continuous growth.

The venture capital industry in the US is also experiencing higher valuations in acquisition activity. But industry experts do not see this as an indication of another bubble, especially given the maturity of the companies that are exiting. Stronger portfolio companies are now entering the public markets with stronger management teams and well-defined strategies. However, many companies that received funding in 1998-2000 still face challenges building momentum. For example, many IT companies funded during this period continue to encounter sustainability problems despite recent improvements in revenue generation and higher valuations for the companies themselves.

Jesse Reyes, vice president of global research at Thomson Venture Economics, said: “While these numbers do not yet reflect the most recent flurry of IPO activity, it is a continued validation that the venture capital and buyout industries are getting healthier.”