According to Preqin, for over a decade since the dot-com crash, the venture capital industry has experienced largely lacklustre returns which have led to tough fundraising conditions for all but a select group of top-tier managers. More recently, however, there have been encouraging signs across the industry, with returns significantly improving and fundraising picking up, particularly as market conditions become more favourable.

Venture Capital

Other Venture Capital Market Key Facts:

  • Over a longer period of three years to March 2014, venture capital funds have produced average returns of 12.7%, on par with the “All Private Equity” benchmark over the same period.
  • More capital was invested in companies by venture capital firms in Q2 2014 than in any other quarter, with $23bn of funding across the quarter.
  • $38bn has been raised by 220 venture capital funds reaching a final close in 2014 YTD (as at 14 October), already surpassing the $31bn raised by 274 funds that closed in 2013.
  • More than half (56%) of venture capital investors surveyed in October 2014 are planning to make their next commitment to a venture capital fund by the end of 2015.
  • 70% of venture capital funds closed in 2014 YTD have closed at or above their target, up from 63% of funds closed in 2013.
  • 581 venture capital funds are currently in market, as of 23 October 2014, more than at any other point in the period 2007 – 2014.
  • Venture capital firms realized $105bn worth of investments in portfolio companies during the first three quarters of 2014, higher than in any other entire year in the period since 2007.

Venture Capital

Venture Capital

Comment:

“The Achilles Heel for venture capital funds since the turn of the millennium has, of course, been performance. Returns have generally been lagging well behind other private equity strategies, but despite this, many investors have stuck with VC. The main argument for this has been that while the average performance has been disappointing, the returns of the best funds have been excellent. If investors can identify and get into these funds, they have been able to do well.

Venture Capital

In recent years, however, there has been a notable pickup in the fundraising market, coupled with a strong deals and exit environment. There has also been a marked improvement in venture capital fund returns, so much so that the industry is the best-performing strategy over one year to March 2014, and on par with the ‘All PE’ benchmark over three years. The turnaround in venture capital fortunes is both welcome and highly significant for the industry, and especially for investors looking for investment opportunities going forward.”

Christopher Elvin, Head of Private Equity Products – Preqin

Venture Capital