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The Daily Start-Up: Law Of Decelerating Returns

Research firm Cambridge Associates today released its quarterly report (opens PDF document) on venture capital fund performance for the first time, thanks to a new partnership with the National Venture Capital Association, which ended its relationship with Thomson Reuters for this specific data. The report today shows that returns for venture capital funds declined 2.9% in the first quarter, the third quarterly decline but an improvement over the fourth quarter when returns fell 12.5%. Of course, since venture capital is a long-term investment class, a quarterly snapshot doesn’t give us the full picture. More important is the 10-year benchmark, since the typical fund life is a decade. That figure, according to Cambridge Associates’ U.S. Venture Capital Index, sits at 26.2%, an impressive figure until you realize that dot-com era funds and their spectacular returns are factored in. Once those are gone, the 10-year returns will look more like the nine-year number, which is minus 4.9%. The venture returns still appear to be outperforming stock-market indices, but the caution here is that Cambridge relies on data disclosed by venture firms - those outfits that have closed down and performed poorly may not still be reporting to Cambridge….