NVCA and Cambridge Associates released June 30, 2011 benchmark statistics for the U.S. venture capital industry which show modest improvement from returns seen the past few quarters. What is not clear, however, is what effect an IPO market which stalled after the June 30 reporting date will have on returns in the next few quarters. Remember that we had seen increased IPO activity in the first seven months of 2011. As the second quarter ended, it appeared that the large number of later stage, mature, eligible companies with sights set on an IPO would finally be able to access the levels of capital the public equity markets provide.  Then a series of events occurred including the federal budget impasse and US credit downgrading which depressed public markets. Optimism turned to caution.

The press release summarizing these results as well as a detailed year-by-year report on the US venture capital industry performance is available on the NVCA website.  As you will read, the U.S. venture capital returns for the second quarter was 7.0%. The most recent five years produced an overall return of 7.4% IRR. Longer term, the 20 year return is 27.4%. Historically, the U.S. venture capital industry has returned 18%-24% to its investors. This performance is at least double that of the major economic indices such as the DJIA, NASDAQ Composite or S&P 500.

For vintage year funds 1981-2010, overall for every dollar put into funds by investors, $1.08 has been distributed back to the investors. Additionally, companies still in venture portfolios had a net asset value (NAV) on June 30 of 52 cents, bringing the total value for the the period to $1.60 for each investor dollar.  This figure represents a collective pool of funds; individual firms achieve returns above and below this aggregate number, creating the quartiles the industry has come to use to measure individual fund performance relative to the overall asset class (“alpha”).

With a large number of companies awaiting a stronger IPO window, it is worth noting that more than 30% of the value of June 30 portfolio holdings is held by funds of vintage year 2002 and older. Recognizing the need for an improved IPO market, NVCA has been actively engaged in the IPO Task Force  – a broad-based private sector group recommending reforms needed to restore emerging company access to the public capital markets.  We are hopeful that the last months of 2011 will see a re-opening of the IPO window so companies can continue along their growth trajectories and create jobs, returns, and shareholder value for the country.