With year end venture return numbers due out at month’s end, now is a good time for followers of the venture capital industry to familiarize themselves with an important performance measure: cash ratios.

Cash ratios refer to the relationship between distributions (and likely distributions) and contributions from limited partners – that is, actual dollars moving between venture funds and investors. It has received a lot of recent attention in the academic world and media as a companion or replacement metric for IRR.

At the request of the NVCA Research Committee for cash ratio benchmarks to be available alongside IRR benchmarks, here is the first-time cash ratio benchmarking report for recent vintage years. It is based on the ratio of net LP distributions, Net Asset Values (NAVs), and total value to net LP contributions.

There are three metrics, all expressed as multiples of total LP contributions to these vintage year funds: 1) distributed to LPs (DPI), 2) residual value or current Net Asset Values (RVPI), and 3) total value (distributed plus residual value).

This data applies to US venture capital funds tracked by Cambridge Associates performance benchmark calculator database.

Here's how to read the chart: Refer to page 3 which reports TVPI, or the ratio of total value to paid in. Note that this page is the "sum" of the DPI and RVPI pages. For the 2002 funds, for every $1.00 paid in by LPs, exactly $1.04 current exists in total value. The median fund is also at $1.04 in value. The maximum TVPI is $1.90, 75%ile is $1.21, 25%ile is $0.75, and the bottom is $0.45.

Looking further at the 2002 funds, page 1 tells us that already distributed to paid in ratio (DPI) is $0.40, page 2 tells us that the residual value to paid in (RVPI) is $0.64, and page 3 tells us that the resulting total value to paid in (TVPI) is $1.04.

The NVCA and Cambridge will supply these ratios each quarter so that you can compare the various vintage years and how they are performing. Stay tuned for performance updated through 12/31/2009 which is due out at the end of April.