Venture capitalists are starting to make a little more money with their bets on early-stage companies. But investors still would do better if they were to place cash in the public markets. That’s the latest finding from Cambridge Associates, which tracks the performance of venture capital and private equity firms.
According to the report, venture capitalists saw a 14 percent return for the 12-month period ended Sept. 30, 2013. That trailed every major stock index, including the Nasdaq, which was up 24.9 percent for that period, and the S&P 500, which was up 19.8 percent.
However, when looking at long-term results of 10-years or more, the venture capital and private equity asset classes outperformed their public market counterparts.
A strengthening IPO market — buoyed by companies such as Tableau, Zulily and Twitter in 2013 — is helping to propel returns in the venture capital arena.
“The healthy exit environment and overall strong after-market performance has been a boon for the industry although it has contributed to a rise in pre-money valuations, particularly for later stage IT deals,” said Theresa Hajer, Managing Director, Venture Capital Research at Cambridge Associates.
Companies such as DocuSign, Box, Redfin and others have raised huge financing rounds in recent months, setting the stage for additional tech IPOs.
Distributions during the period rose 25.4 percent, to $6.3 billion, which helped the one, three and five year returns in the venture capital class. Information technology was the largest sector for venture capital returns, representing nearly a third of the index’s total value at the end of the third quarter. Health care and software were the other two big segments, and together with IT received 81 percent of the capital invested during the quarter.
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