In report called A Decade of Evolution, SVB Capital, takes a look at the performance of three vintages of venture capital funds. It was a decade shaped by two major economic events: the aftermath of the technology bubble and the global financial crisis of 2008 and 2009. The initial impact and ongoing legacy of these two economic collapses on the venture industry differs, and these differences are reflected in industry performance trends. It has clearly been a roller coaster ride for LPs invested in funds raised between 2004 and 2007, as Exhibit 1 shows.
But these funds are “well-positioned” to generate very strong returns, says SVB Capital. For those funds that deployed significant capital prior to the economic downturn, SVB found that “proactive portfolio management” resulted in only a moderate increase in write-offs.
The 2004-2007 vintage funds, although significant uncertainty remains, have a feasible path to overall net returns of 2.5x+ for upper quartile funds of this vintage, with several generating 5-10x+ multiples. The funds in this group had early-stage exposure to companies that are currently valued very highly, such as Facebook and Groupon, for example but also LinkedIn, HomeAway, Fusion IO, Advanced Biohealing and AdMob. SVB says that returns for select funds will be as high as they were in the late 1990s. For funds that deployed significant capital prior to the economic downturn, SVB found that “proactive portfolio management” resulted in only a moderate increase in write-offs. Being slow to deploy capital prior to the downturn were then well-positioned to take advantage of the moderately lower valuation environment during the downturn.