VCs Shatter Return Records in 1999

While it’s no secret that last year’s technology-crazed public markets provided venture capital firms with record 1999 returns, it’s unlikely that even industry insiders anticipated just how staggering the final results actually were.

According to Venture Economics, which recently released its Private Equity Performance Index results for 1999, venture capital firms achieved average returns of 146.2% last year, an increase of 128.7% over 1998 results. This marks the largest one-year increase in return numbers that Venture Economics has witnessed since it began tracking such data over thirty years ago.

Preliminary analysis of the figures indicates that elevated public market valuations were the primary cause of the sky-high return results. Although no one is predicting that the venture capital market is in danger of crashing any time soon, the report does warn that recent public market troubles will most likely signal a fall in valuations and, in turn, a decrease in overall VC returns for 2000.

Such a prediction was supported by a number of venture capitalists.

“Valuations have already been cut in half since the public market troubles began,” said Dan Nova, managing general partner with Highland Capital Partners, echoing the feeling of his peers. “I could even see them being cut by as much as 75% before the decline ends.”

The Venture Economics report also revealed that early-stage investments provided the highest one-year returns in 1999, at 247.9%, while mezzanine deals only yielded 8% one-year returns.