WTIA Venture Capitalist Outlook Survey Shows Improving Trends for Q4
November 7, 2009 by · Leave a Comment
Washington state’s venture capital (VC) community shows a slightly more optimistic outlook for the coming quarter, according to the results of the Q4 2009 Venture Capital Outlook Survey from the Washington Technology Industry Association (WTIA). In what may be a reflection of the beginnings of a broader economic recovery, for the third consecutive quarter, predictions are more positive than the previous quarter. Overall, the main concerns for VCs in the coming quarter include overall market growth, national business conditions, and attracting and retaining senior leadership for their portfolio companies.
“It’s encouraging to see the venture community predict a slowdown in company layoffs, and to also see a gradual improvement of valuations for both mid- and late-stage deals,” said Ken Myer, president and CEO of the WTIA. “We appear to have reached a point of stability, with job losses expected to slow yet hiring not projected to increase. Hopefully we are turning a corner but concern remains given the slow economic recovery and the impact on company sales.”
The survey queries top local VC firms about indicators for the coming quarter and covers topics such as deal quality, deal quantity, expected exits and various business metrics for their portfolio companies. Results are compared to previous quarters. Key highlights from the Q4 09 survey, which is sponsored by Ernst & Young, include:
-- Layoffs predicted to decline sharply in Q4. Eleven percent of
respondents predict their portfolio companies will reduce workforces by
more than 10 percent, a sharp decrease from the 50 percent of respondents
who expected similar-sized layoffs last quarter. In the near term, however,
hiring is not expected to increase.
-- Late stage investments up. Sixty-seven percent of participants predict
a moderate increase in late-stage investments, up from twenty seven percent
last quarter. This is the most optimistic forecast among all stages this
year.
-- Mid-stage investment opportunities rise. Thirty-three percent of
participants predict moderately higher investments in this category -- up
from just eighteen percent last quarter. Twenty-two percent of respondents
predict moderately lower early-stage investments, down from 36 percent last
quarter.
-- Investment plans, both new and follow-on, remain similar to last
quarter. Seventy percent of participants in the survey plan to make one to
two new investments in Washington state companies in Q4.
The summary and full results of the survey are available on the WTIA’s Web site: http://www.washingtontechnology.org.
Full Summary: http://www.washingtontechnology.org/documents/pressreleases/WTIA_Summary_VCOS_4Q_2009.pdf
Raw Data: http://www.washingtontechnology.org/documents/pressreleases/Raw_Data_Q4_2009.pdf
About the Washington Technology Industry Association
The Washington Technology Industry Association, founded in 1984, is the largest statewide association of technology companies, IT departments and individual technology professionals in North America. With more than 1,100 member companies representing more than 125,000 employees in Washington State, the association is a catalyst for sharing expertise, fostering collaboration, delivering key business services and advancing the value and global impact of technology companies doing business in Washington. The association’s global partners are Davis Wright Tremaine LLP, Microsoft, Regence BlueShield, Vertafore and Wells Fargo Insurance Services. The association’s funding partners are AH&T Insurance, F5 Networks, Moss Adams LLP and RealNetworks. For more information, go to www.washingtontechnology.org.
Venture Capital Performance as of Q2 2009 Impacted by Poor Exit Market, According to Cambridge Associates and the NVCA
November 7, 2009 by · Leave a Comment
While venture capital performance remained largely unchanged for most time horizons for the period ending June 30, 2009, there was notable deterioration in the 10-year returns, according to the Cambridge Associates U.S. Venture Capital Index®, the performance benchmark of the National Venture Capital Association. The 10-year return fell to 14.3 percent from 26.2 percent in the previous quarter — and from 33.9 percent a year earlier. The reason for the drop: Returns for the first half of 1999, when the exit market was especially active and profitable, are no longer included in the 10-year calculation. The absence of late 1990 exit activity is expected to impact returns for subsequent quarters as well.
Despite the decline in 10-year returns, the venture capital index continued to outperform other major market indices during Q2 2009 across all time horizons.
US Venture Capital Index Returns for the Periods ending
6/30/2009, 3/31/2009 and 6/30/2008
For the 1 3 5 10 15 20
period ending Qtr. Year Years Years Years Years Years
------ ------ ------ ------ ------ ------ ------
June 30,
2009 0.2 -17.1 1.3 5.7 14.3 36.3 22.7
March 31,
2009 -2.9 -17.5 1.3 5.8 26.2 34.2 22.5
June 30,
2008 0.4 4.7 13.3 11.5 33.9 33.4 21.9
Other indices at June 30, 2009
DJIA 12.0 -23.0 -6.3 -1.7 -0.4 8.1 9.0
NASDAQ
Composite 20.1 -20.0 -5.5 -2.2 -3.74 6.6 7.5
S&P 500 15.9 -26.2 -8.2 -2.2 -2.22 6.9 7.8
Source: Cambridge Associates LLC
Note: Because the US Venture Capital index is cap weighted, the largest
vintage years mainly drive the index's performance.
“We are now entering a period of time when the stark differences between today’s exit market and the exit market ten years ago will be manifested in the return numbers in a meaningful way,” said Mark Heesen, president of the NVCA. “Without a stronger IPO market, and by stronger I am suggesting a multiple of 8 to 10 times the current volume, these longer term performance numbers will continue to deteriorate over the next few years. Venture capital may still outperform the other major market indices, but by far less than the industry did in the last decade.”
Said Peter D. Mooradian at Cambridge Associates, “The exit environment certainly needs to improve for the venture industry to generate strong returns for investors. But we believe that a sustained and meaningful industry shakeout emanating from the 2008 financial crisis will improve the competitive environment and entry valuations, another important component of the return equation.”
Vintage Year Return Ratios
The following chart illustrates the relationship between the dollars contributed to venture capital funds by limited partners and the dollars distributed back to them by vintage year. The chart also incorporates the Net Asset Value (NAV) of the portfolio at 6/30/09 for an overall ratio. For example, the 1998 vintage year funds have already returned in cash 1.29 times the amount of contributions received from LPs. If you account for the current NAV of existing portfolio, the ratio increases to 1.45 times. However, it is important that the NAV is unrealized and will change as companies exit the portfolio, are revalued, or are written off. The 1995 vintage year funds have the most positive ratio, returning 5.98 times the cash contributed by LPs, a number which rises to 6.06 should those funds realize the value of what is currently in the portfolio. Later vintage years have yet to return significant cash to LPs as most funds do not begin return dollars until after year 5.
Vintage Year Return Ratio Chart
LP Distributions/ Current NAV/ LP Distributions and NAV/
Vintage Year LP Contributions LP Contributions LP Contribution
----------------- ---------------- -------------------------
1981-1994 3.23 0.01 3.24
1995 5.98 0.07 6.06
1996 4.36 0.08 4.45
1997 2.79 0.10 2.89
1998 1.29 0.16 1.45
1999 0.62 0.26 0.88
2000 0.46 0.47 0.92
2001 0.37 0.61 0.98
2002 0.39 0.64 1.02
2003 0.31 0.78 1.09
2004 0.14 0.84 0.98
2005 0.09 0.83 0.92
2006 0.03 0.89 0.92
2007 0.00 0.84 0.84
2008 0.00 0.87 0.88
Overall 1.11 0.42 1.53
Additional Performance Benchmarks
To view the full, comprehensive report, which includes tables on additional time horizons, vintage years and industry returns, please visit the Cambridge Associates or NVCA Websites.
Cambridge Associates derives its U.S. venture capital benchmarks from the financial information contained in its proprietary database of venture capital funds. As of June 30, 2009, the database is comprised of 1,281 venture funds formed from 1981 through 2009 with a value of approximately $89.5 billion.
The National Venture Capital Association (NVCA) represents more than 400 venture capital firms in the United States. NVCA’s mission is to foster greater understanding of the importance of venture capital to the U.S. economy, and support entrepreneurial activity and innovation. According to a 2009 Global Insight study, venture-backed companies accounted for 12.1 million jobs and $2.9 trillion in revenue in the U.S. in 2008. The NVCA represents the public policy interests of the venture capital community, strives to maintain high professional standards, provides reliable industry data, sponsors professional development, and facilitates interaction among its members. For more information about the NVCA, please visit www.nvca.org.
Founded in 1973, Cambridge Associates delivers a range of services, including investment consulting, outsourced portfolio solutions, independent research, and performance monitoring and tools across all asset classes, to approximately 850 institutional and private clients worldwide. The firm has advised clients on alternative assets since the 1970s and compiles the performance results for more than 2,000 private partnerships to publish the Cambridge Associates U.S. Venture Capital Index® and Cambridge Associates U.S. Private Equity Index®, which are widely considered to be the industry-standard benchmark statistics for those asset classes. In total, the firm has over 950 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; Singapore, and Sydney, Australia. For more information about Cambridge Associates, please visit www.cambridgeassociates.com.
