Venture capital funds lost 27% in the 12-month period ended June 30, compared with a 23.8% loss in the 12 months ended March 31, according to research firm Thomson Venture Economics and the National Venture Capital Association industry group.
Many institutional investors invest in venture funds to buy early shares of start-ups with the potential of producing lucrative returns from initial public offerings and mergers and acquisitions. Over the longer term, returns, while lower, remained strong, the report said, according to Reuters.
Many firms, good and bad, are “reducing their existing commitments,” says Neil Rue, a principal at the Pension Consulting Alliance’s Portland, Oregon office. The absence of deal flow and the poor performance of existing funds have taken the air out of even some of the traditionally strongest managers, says Rue (see Head of the Class: Private Eye ).
The three-year return for venture funds in the second quarter was 26.5%, while the five-year return was 30.6%. On a 10-year basis, venture funds in the second quarter returned 26.1%, while they registered a 16.9% gain on a 20-year basis.
Venture capital firms make money by selling shares of privately held start-ups in initial public offerings or to larger companies seeking acquisitions. However, opportunities have contracted sharply amid the battered stock market, and prospects continue to appear bleak at present.