Posted by Marc Huey on 2010-08-27
The San Jose Mercury News reported recently on the grim numbers released by the National Venture Capital Association on returns on venture capital investments. 10-year returns turned negative toward the end of 2009 and are even worse in the first quarter of 2010. The 10-year return is a significant benchmark of performance in the venture capital industry. It is reported that the NVCA numbers show “venture capital funds returned 25.8 percent over 10 years for the quarter ending March 2009” and “for the quarter ending March 2010, that return had fallen to minus 3.9 percent.”
Furthermore, these numbers indicate a more serious problem in the venture capital financial model. The venture capital model is built on a minimum number of portfolio companies holding IPOs to make up for other portfolio companies which fail. With less and less companies going public, it is closer to impossible for venture firms to meet their required returns for investors and sustain their current business model. This translates into a shift in Silicon Valley and ultimately affecting job creation and the overall economy.
The article points to an end of the vneture capital industry. Is it really an end or just a realignment? And are IPOs headed for a come back or will smaller M&As proliferate in the years to come? Article found can be found here.PRIVATE: Members Only