Private Equity Performance Continued Downward Trend in Q3 2001.Business Editors NEW YORK--(BUSINESS WIRE)--Feb. 19, 2002 As expected, Private Equity Performance Index results for Q3 2001 showed a continued downward trend for the third consecutive quarter, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Venture Economics and the National Venture Capital Association. This downward trend can be attributed to decreasing technology company valuations, public market volatility, and a weak economy. One-year returns for venture capital funds Venture Capital Funds An investment fund that manages money from investors seeking private equity stakes in small and medium-size enterprises with strong growth potential. Notes: fell from -18.2% at the end of Q2 2001 to -32.4% at the end of Q3 2001. When looking at longer time frames (3-year through 20-year), performance was minimally affected during the third quarter. One-year returns for all private equity, including venture capital, buyouts and mezzanine funds A mezzanine fund is a type of private equity or merchant banking fund. A typical mezzanine investment consists of a debt or debt-like instrument, paired with an equity “sweetener. , showed a performance of -21.4% ending 9/30/2001. That compares with one-year, public market returns of -64.4% on the NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on and -31.4% on the S&P. "The year 2001 was a very difficult one for the venture capital community. The combination of significant market volatility, declining valuations and much uncertainty forced venture capitalists Venture Capitalist An investor who provides capital to either start-up ventures or support small companies who wish to expand but do not have access to public funding. Notes: Venture capitalists usually expect higher returns for the additional risks taken. to rethink re·think tr. & intr.v. re·thought , re·think·ing, re·thinks To reconsider (something) or to involve oneself in reconsideration. re investment strategies and return to investing fundamentals. We are now beginning to sense some optimism among the venture community, which will hopefully translate into better performance figures in the future," commented Mark Heesen, president of the National Venture Capital Association.
Figure 1. Venture Economics' US Private Equity Performance Index(PEPI)
Investment Horizon Return as of
9/30/01
Fund Type 3 Mo 6 Mo 1 Yr 3 Yr 5 Yr 10 Yr 20 Yr
Early/Seed VC -12.8 -16.9 -36.3 81.0 53.9 33.0 21.5
Balanced VC -9.8 -11.7 -30.9 45.9 33.2 24.0 16.2
Later Stage VC -3.9 -7.5 -25.9 27.8 22.2 24.5 17.0
All Venture -10.0 -13.3 -32.4 53.9 37.9 27.4 18.2
All Buyouts -8.0 -6.9 -16.1 2.9 8.1 12.7 15.6
Mezzanine -2.0 -0.9 3.9 10.0 10.1 11.8 11.3
All Priv Equity -8.2 -8.7 -21.4 16.5 17.9 18.8 16.9
- Venture Economics' Private Equity Performance Index is calculated quarterly from Venture Economics' Private Equity Performance Database (PEPD). The PEPD tracks the performance of 1400 US venture capital and buyout Buyout The purchase of a company or a controlling interest of a corporation's shares. Notes: A leveraged buyout is accomplished with borrowed money or by issuing more stock. funds formed since 1969. Returns are net to investors after fees and carried interest. Three and 6-month returns are un-annualized. As the chart below shows, portfolio valuations fell to $51.6 million in Q3 2001 from their high of $93.1 million in Q4 2000. The drop in portfolio valuation indicates that many venture capitalists have taken a conservative outlook regarding the future by "writing down" the values of the companies in their portfolios.
Figure 2. Quarter End Company Valuations
(in Millions)
Average Median
Quarter End Valuation Valuation
2000 Q3 87.1 38.0
2000 Q4 93.1 44.4
2001 Q1 65.2 29.7
2001 Q2 59.9 30.9
2001 Q3 51.6 25.9
Vintage Year vintage year n. 1. The year in which a vintage wine is produced. 2. A year of outstanding achievement or success. vintage year n it's been a vintage year for plays → Results With company valuations steadily declining since 2000 and distributions hard to reach due to sluggish IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. and M&A markets, young funds are finding it difficult to reach the break-even point break-even point - In the process of implementing a new computer language, the point at which the language is sufficiently effective that one can implement the language in itself. . For example, Figure 3 reveals the portion of returns that has actually been realized as distributions versus unrealized. The DPI (Dots Per Inch) The measurement of the resolution of display and printing systems. A typical CRT screen provides 96 dpi, which provides 9,216 dots per square inch (96x96). Flat panel displays from 110 to 200 dpi have also been developed. , or distribution to paid in ratio, for funds formed in 1999 have only returned 15% of their invested capital. However, the 1999 funds are only worth 76% of the amount invested, indicating that younger funds are barely breaking even.
Figure 3. Vintage Year Results for Selected Years
Venture Funds as of 9/30/2001
Annualized Realized Unrealized
Year of Return Return Return
Fund Since (DPI) (RVPI)
Inception
Formation (percent) (times) (times)
1990 27.5 2.59 0.43
1994 42.1 2.51 0.97
1999 -6.4 0.15 0.76
All Vintage 18.0% 1.39 .68
Years
Vintage year results are performance results measured for funds by the year they started investing. These returns are driven by both realized exits (capital gains) and unrealized valuations. Unrealized returns are based upon interim valuations provided by the individual venture funds. These valuations permit IRR IRR In currencies, this is the abbreviation for the Iranian Rial. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. analysis during the life of a portfolio but do not affect the ultimate payout to the investors. Analyzed an·a·lyze tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es 1. To examine methodically by separating into parts and studying their interrelations. 2. Chemistry To make a chemical analysis of. 3. in terms of the original investment in the venture funds by the limited partner investors, 1.39 times original investment has been realized and .68 times the original investment is based upon portfolio valuations. About Venture Economics Venture Economics, a Thomson Financial Thomson Financial A major provider of information, analytical tools, and consulting services to the financial community. The firm, a division of Thomson Corporation, is best known to investors for its First Call segment, which publishes consensus earnings company, is the foremost information provider for equity professionals worldwide. Venture Economics offers an unparalleled range of products from directories to conferences, journals, newsletters, research reports, and the Venture Expert(TM) database. For over 40 years, Venture Economics has been tracking the venture capital and buyouts industry. Since 1961, it has been a recognized source for comprehensive analysis of investment activity and performance of the private equity industry. Venture Economics maintains long-standing relationships within the private equity investment community, in-depth industry knowledge, and proprietary research techniques. Private equity managers and institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. alike consider Venture Economics information to be the industry standard. For more information about Venture Economics, please visit http://www.ventureeconomics.com. About National Venture Capital Association The National Venture Capital Association (NVCA NVCA National Venture Capital Association ) represents over 450 venture capital and private equity organizations. NVCA's mission is to foster the understanding of the importance of venture capital to the vitality of the U.S. and global economies, to stimulate the flow of equity capital to emerging growth companies by representing the public policy interests of the venture capital and private equity communities at all levels of government, to maintain high professional standards, facilitate networking opportunities and to provide research data and professional development for its members. For more information about NVCA, visit www.nvca.org. |
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