PRZOOM - /newswire/ -
Nishi-Shinjuku, Tokyo, Japan, 2010/11/11 - A more robust IPO market will also drive higher M&A transaction values by providing a competing alternative exit route for venture-backed companies.
With the exception of the 20-year return which increased substantially, venture capital performance increases moderately across most time horizons as of the end of the second quarter of 2010. Since the increase was moderate, it reflected ongoing challenges in today's venture-backed exit market which continues to recover from the financial crisis of 2008. Venture capital performance surpassed the public market indices for the quarter, 3, 5, 15 and 20-year time horizons.
There has been an increase in exit volumes in 2010, the number of IPOs and acquisitions have not translated to significantly improved venture returns yet. The venture industry will likely see a few more quarters of moderate performance overall until distributions to limited partners begin to flow more readily in the coming year.
There has been a welcome increase in IPO activity in 2010 and there is still room for improvement. A more robust IPO market will also drive higher M&A transaction values by providing a competing alternative exit route for venture-backed companies. When this occurs, better performance for the asset class will follow.
For example, the 2003 vintage year funds have distributed cash of .38 times the amount of capital paid in by LPs. If you account for the current value of the existing portfolio of .73, the ratio increases to 1.11 times. However, it is important to note that the residual value is unrealized and will change as companies exit the portfolio, are revalued, or are written off.
The 1995 vintage year funds continue to have the most positive ratio, returning 6.14 times the cash contributed by LPs, a number which rises to 6.19 should those funds realize the value of what is currently in the portfolio. More recent vintage years have yet to return significant cash to LPs as most funds do not begin returning capital until after year five.
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