Returns at venture capital firms took a turn into negative territory during the third quarter of 2011 as the IPO market took a nosedive for the period ended September 30.  On the bright side, the losses at venture firms still outperformed the Nasdaq, Dow and S&P 500 for that period, according to a report from Cambridge Associates and the National Venture Capital Association.

Which way will VC returns head next? Photo: Bigstock

Meanwhile, 10-year returns continue to move into positive territory as venture capitalists leave the dot-com bust years behind. (See table above).

“In the third quarter, the volatile exit market had an impact on the quarterly and annual return numbers,” said Mark Heesen, president of NVCA. “However, the exit market did stabilize at the end of the year and we now have a record number of venture-backed companies in registration to go public. If these companies are able to successfully IPO in the near term and the acquirers continue to purchase our companies, we expect to see consistent and marked performance improvements across all time horizons in 2012.”

Previously on GeekWireTech IPOs start with a strong pop, and then promptly tank

[Photo via Bigstock]

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  • Ray Burt

    This misses the point. VC firms exist for the partners to make money…which they do even as their investments fail.  Strange parallels to the stories in Michael Lewis’ “The Big Short” that highlighted how people on Wall Street made out like bandits regardless of which side of the mortgage bet they played. It’s great and always profitable to be an owner/partner/manager of a VC firm.  It’s folly to be an investor in a fund….PT Barnum has a name for folks who do.

  • Viv

    It isn’t clear if these numbers are annualized. From the looks of it I think they are not annualized. If that is the case, the numbers are woeful. But an another commenter (Ray) say, it’s for the suckers to invest in these funds.
    PS: I wonder if the reporter knows the difference between absolute and annualized returns. I doubt.

    • viv

      quick correction. The report on NVCA’s site has this embedded in the benchmark report: “All returns greater than one year are annualized.” In that case the returns are decent for the last 5 years but long term (> 20 years) they seem to be awesome. If you are a foundation or an endowment or some structure where you have permanent capital, there is no reason why you should not allocate some portion to the right VC fund.

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