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Preqin Private Equity Venture Report Oct2010
Preqin Private Equity Venture Report Oct2010
Fig. 1: Breakdown of Annual Venture Fundraising by Geographic Fig. 2: Breakdown of Venture Firms by Geographic Location
Focus: 1998 - 2010 YTD
Aggregate Capital ($bn)
Vintage Year
Source: Preqin Source: Preqin
Venture Fund Size Fig. 3: Breakdown of Annual Venture Fundraising by Fund Type:
Fig. 4 illustrates the breakdown of venture capital firms by 2005 - 2010 YTD
the largest fund they have raised or are currently raising,
demonstrating that 78% of venture firms have never raised a
fund greater than $250 million and only 8% of firms have raised a
Data Sources:
Source: Preqin
Preqin Funds in Market
Raising Funds
Materials
Business Services
Industrials
Discretionary
and Communications
Technology
Health Care
Information
Telecoms, Media
www.preqin.com/fmp
Source: Preqin
Source: Preqin
Venture Performance
Preqin’s Performance Analyst is the industry’s most extensive vintage 1996 venture funds in the sample, and more than half of
source of net to LP private equity fund performance, with full vintage 1997 funds, have produced IRRs of 20% or more. Nearly
metrics for over 5,100 named vehicles. In terms of capital raised, one-fifth of vintage 1998 funds have also done so, but the figures
Performance Analyst contains data for over 70% of all funds then fall away further for vintages following this, with less than 5%
raised historically. of vintage 1999 and 2000 venture funds returning 20% or more.
The figure for vintage 2005 funds suggests some improvement
It is well known that the collective performance of venture capital in venture fund performance, with nearly 20% of funds achieving
funds over the past decade, since the crash of the technology an IRR of 20% or more, despite the median fund still being in the
bubble, has not lived up to expectations. Fig. 1, which is based red. This demonstrates the importance of good fund selection for
on performance data for more than 700 venture capital funds venture capital fund investors. The proportion of funds achieving
(excluding early stage funds), shows the median IRR of venture an IRR of 20% or more is lower for both vintage 2006 and vintage
funds by vintage for the years 1996 to 2007. Vintage 1997 funds 2007, but these funds have had less time to add value to their
have the highest median IRR of all of the vintages shown, at portfolio investments and are still early in their J-curves.
around 23%, and funds of this vintage require extremely high
returns – in excess of 75% – to be considered a top quartile fund Fig. 3 shows the mean IRR and the standard deviation of IRRs
in terms of IRR. As Fig. 1 shows, the best performing vintage for each vintage year for venture funds of vintages 1996 to 2007.
1996 venture funds also produced impressive returns, with an For vintages 1996 to 1998, standard deviations are in excess of
IRR over 62% required for a fund to be in the top quartile for this 45 percentage points, mainly due to the extremely large returns
vintage. produced by some funds of these vintages (some funds in the
sample have IRRs in excess of 500%). Following the burst of
For the vintages following these, the technology crash affected the technology bubble, standard deviations have been much
the overall performance of venture funds, and returns have lower, but appear to be trending upwards since the lows seen for
struggled to recover since. The median vintage 1998 venture fund vintages of the early 2000s, suggesting an increasing importance
has still produced a positive IRR, at just over 6%, and a 17.5% in fund selection. Vintage 2005 funds have one of the highest
IRR is required for a fund to be in the top quartile. However, standard deviations of recent vintages, at around 25 percentage
the median fund for each of the three following vintages has a points, once more showing the variation in the performance of
negative IRR, and top quartile performance is also significantly funds from this vintage. The mean IRR for vintage 2005 funds
lower. stands at just over 6%. When compared to the median IRR
of -1.9%, this suggests that some funds of this vintage are
Fig. 2 shows the proportion of venture funds for each vintage year significantly outperforming their respective median benchmarks.
from 1996 to 2007 that have achieved an IRR of 20% or more, While the median venture capital fund’s performance has
portraying a similar story to that shown in Fig. 1. Nearly 35% of fluctuated around 0% for vintages 1999 to 2007, investors with
Fig. 1: Venture Funds: Median Net IRRs and Quartile Boundaries Fig. 2: Proportion of Venture Funds Achieving an IRR of 20% or More
by Vintage Year
Net IRR Since Inception (%)
Proportioon of Funds
good fund selection skills are still able to achieve significant Fig. 3: Venture Funds: Median Net IRR and Standard Deviationof
returns from the asset class. IRRs by Vintage Year
80%
74.7%
Venture Assets under Management 68.4%
70%
Assets under management of venture fund managers rose
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Fig. 4 overleaf shows the top 10 performing venture funds. The -10%
fund universe was restricted to venture funds with fund sizes Mean IRR Standard Deviation of IRRs
of at least USD 50 million. 1998 vintage Matrix Partners V tops Vintage Year
the list, with a net IRR of 514.3%. Columbia Capital managed Source: Preqin
Data Source:
Preqin’s Performance Benchmark module is available free to industry professionals. To sign up for this free private equity
benchmark service please visit:
www.preqin.com/benchmarks
Preqin’s Performance Monitor is the industry’s most extensive source of net to LP private equity fund performance, with full metrics
for over 5,100 named vehicles. In terms of capital raised, Performance Analyst contains data for over 70% of all funds raised
historically.
www.preqin.com/pm
Rank Fund Fund Manager Vintage Fund Size (Mn) Type Net IRR (%)
1 Matrix Partners V Matrix Partners 1998 200 USD Venture (General) 514.3
Benchmark
2 Benchmark Capital Partners II 1997 125 USD Venture (General) 267.8
Capital
3 Matrix Partners IV Matrix Partners 1995 125 USD Venture (General) 218.3
4 Focus Ventures I Focus Ventures 1997 106 USD Venture (General) 213
10 Sequoia Capital VII Sequoia Capital 1996 150 USD Early Stage 167.4
Source: Preqin
* Fund universe restricted to funds with sizes of over $50 million
A number of US-based public pension funds include venture Fig. 2 shows the number of venture firms active since 1980.
fund investments as part of a diverse portfolio of private equity The total number of venture capital firms in the industry peaked
fund interests. One such investor is Indiana State Teachers’ in 2009, when there were 1790 firms active in the market. The
Retirement Fund (TRF). The $4.2 billion pension fund has 7.2% number of new firms entering the market peaked in 2000, when
of its overall assets allocated to private equity funds, of which 204 new firms entered the industry. A number of these firms
22% is invested in venture and early stage vehicles. It has made have not raised a fund since then, and are now considered to
commitments to a number of venture funds currently raising or be inactive (assuming a 10-year fund life), meaning that the total
that have reached a final close in the last six months, including annual number of currently active venture firms has fallen for the
a $5 million commitment to California-based Opus Capital II, first time.
which is currently on the road seeking capital. Opus Capital
Partners’ fund is targeting $250 million to invest in early stage
internet, software, networking and semiconductor companies
in the US and Israel. TRF also allocated $13 million to Forbion
Capital Partners’ recently closed Forbion Venture Fund II, which
Fig. 1: Make Up of Investor Universe by Type Fig. 2: Number of Venture Firms Active, 1980 - 2010 YTD
2,000
1,800
1,600
1,400
1,200
1,000
New
800 Existing
600
400
200
0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Data Source:
Preqin’s Investor Intelligence database currently monitors 2,167 global investors in venture funds of all types from early stage
through to expansion and late stage vehicles. In total, these investors are managing approximately $1.7 trillion in private equity
assets.
www.preqin.com/ii
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