For a quick check on how the US venture capital industry is doing, here are 5 Top Trends:
1. Industry as a Whole: In December of 2009 the US Venture Capital industry’s 10-year returns turned negative (Q4’99 – Q4’09). The third quarter of 2010 reported 10-year returns of -4.6%.[i] In the year ending June 30, 2010, the US Venture Capital Index returned 6.38%, which was lower than Barclay’s government and corporate bond index (9.65%). In the same time frame, the Dow Jones Industrial Average returned 18.94%, the S&P 500 returned 14.43% and the Nasdaq returned 14.94%, making venture capital the lowest performing investment class last year amongst such peers.[ii]
Bottom Line – The VC industry is still struggling with a tough decade of poor aggregate returns.
2. Fundraising by VC Firms: VCs raised more than $7 billion in the first quarter of 2011. That’s a 76% increase in dollar commitments from the same time last year and the best annual start since 2001! While most dollars are still being given to follow-on funds rather than new VC funds (2:1 ratio in the first quarter of 2011), in 2010 there was overall growth in the number of new funds receiving capital.[iii] This should be welcome news for old and new funds alike.
Bottom Line – It’s finally getting easier for VCs to raise money (even for new funds).
3. Areas of VC Investment: Top areas of VC investment in 2010 were software (18% of all deals), biotech (17%), clean tech (17%) and medical devices/equipment (10%). The lowest areas of investment included computers and peripherals (2%), electronics/instrumentation (2%), financial services (2%), retailing/distribution (1%) and healthcare services (1%).
Bottom Line – VCs are targeting some industries far more than others.
4. VC Deal Flow: In 2010 VCs started doing more deals and spending more money. The average deal size rose to $6.7 million.[iv]
Bottom Line – Venture capital markets are finally loosening up again.
5. VC Exits: The total number of VC-backed exits soared upward in 2010 with 72 IPOs and 427 M&A transactions. The average VC-backed M&A transaction in 2010 was $150 million.[v]
Bottom Line – VC exit markets are coming back to life.
[i] Cambridge Associates LLC/National Venture Capital Association
[ii]Cambridge Associations LLC, U.S. Venture Capital Index And Benchmark Statistics; Non-Marketable Alternative Assets, June 30, 2010
[iii] Thomson Reuters/National Venture Capital Association, Venture Capital Industry Raises $7.1 Billion In Q1 2011; Strongest Annual Start For Fundraising Dollars Since 2001, April 11, 2011
[iv] PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
[v] National Venture Capital Association Yearbook 2011