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The goal of benchmarking is to measure comparative performance.
When it comes to cars and other manufactured products, measurements
are precise and benchmarks are consistently applied. As a result,
benchmarks create value by identifying performance gaps and
enabling better decision making based on facts. Venture benchmarks,
however, are a different story.
As a way to compare the performance of venture capital funds
over time, available industry benchmarks can be inconsistent and
confusing. Not surprisingly, LPs often seek independent
verification of these claims. To assess the performance of our own
funds, SVB Capital continuously examines the best methods of using
these statistics.
In this issue of Venture Capital Update, SVB Capital shares our
findings about
venture capital industry benchmarks. We explain the metrics and
methods and review the benefits and limitations of benchmarks
commonly used in the industry. It is our hope that a better
understanding of benchmarking across the investment community can
lead to improved means of developing and gaining value from the
benchmarks.
WHY WE NEED BENCHMARKS
Making an investment in venture capital is a long-term
commitment, with 10 years being the typical lifespan of a fund.
During this period, LPs receive quarterly financial reports on
capital calls and distributions related to their investment.
However, they also need to understand how their investment is
performing while the capital is put to work during the J-curve and
before the funds portfolio
Venture Capital Update
Assessing Fund Performance:
Using Benchmarks in Venture Capital
written by:
Bronwyn Dylla Bailey Research Director 650.855.3021
[email protected]
Aaron Gershenberg Managing Partner 650.855.3011
[email protected]
View the Fourth Quarter 2007 U.S. Private Equity Snapshot
May 2008
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VENTURE CAPITAL UPDATE 2
is completely realized. Financial statements alone will not
provide this perspective, so LPs typically turn to benchmarks.
In addition to gauging the returns they might expect over time,
LPs also require a way to compare the performance of investments
across their portfolio. This is true even when investments are in
different asset classes such as public equity and private equity,
and regardless of whether the LP is a private individual,
endowment, private or public pension fund.
But benchmarks are also an important indicator for venture
capitalists (VCs). Sizing up the performance of a fund in the
middle of its life cycle is key to assessing how portfolio
companies are performing relative to the market.
PERFORMANCE METRICS: APPLES AND ORANGES
When assessing the return-on-investment performance of a venture
fund, three different metrics are typically used: internal rate of
return (IRR)distributions to paid-in capital (DPI)total value to
paid-in capital (TVPI)
IRR provides an effective rate of return based on cash flows and
current valuations of the fund portfolio, while DPI shows the
realized portion of the portfolio that was distributed to the LP as
a multiple of the contributed capital. By comparison, TVPI provides
a multiple value on the entire portfolioboth distributed capital
and the net asset value of the portfolio.1
Which of these metrics is the best assessment of fund
performance? The short answer is, it depends. Many LPs rely on IRR
measurements of
The performance of a venture capital
fund can be calculated via at least one
of the following metrics:
IRR: The annualized effective return
rate which can be earned on the
contributed (invested) capital, i.e. the
yield on the investment.
DPI: The ratio of cumulative
distributions to limited partners
divided by the amount of capital
contributed by the limited partners.
TVPI: The sum of cumulative
distributions to limited partners and
the net asset value of their investment,
divided by the capital contributed by
the limited partners.
performance because they manage a portfolio that includes a mix
of public and private investments. Consequently, IRR reported as a
percentage provides an easy comparison to return percentages on
public investments, even though IRR percentages are not completely
comparable.2 LPs will often look for 400 to 600 basis points over a
public benchmark to justify the illiquid and long-term nature and
risk profile of VC investing. DPI provides a clear metric of the
actual multiple of cash invested which has been received by an
investor, and TVPI provides a metric that accounts for potential
returns that are the result of increased valuations of portfolio
companies as they approach exit. Given this difference, many LPs
rely on TVPI earlier in the life of a fund and DPI towards the end.
In contrast to IRR, TVPI and DPI do not account for the time it
takes to produce these gains.
Despite the shortfalls, the three metrics have become the
standard for comparison. In our experience, we have found that LPs
rely on a combination of all three metrics to assess the
performance of their investments, with some favoring one over the
other, in part, due to the preference of their board and their
specific type of investment.
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All three metrics can result in a biased assessment of fund
performance due to the way each is calculated. For instance, the
calculation of IRR is greatly influenced by the timing of returns
in a fund, or more specifically, short holding periods.3 The
example above shows two funds of identical size and capital call
timing. Fund A provides a steady return of 2.0x to its investors
during the last four years of the fund with an ending IRR of 14
percent. Fund B returns only 1.1x, but with an IRR of more than
2000 percent due to the large returns early in the funds life, soon
after the investment was made.
This example shows that funds with lower IRRs can still provide
higher
requiring large amounts of capital very early in a companys life
cycle, and requiring longer investment periods, may inherently
generate lower IRRs. Larger capital calls would occur earlier and
returns would be realized later in the life of this type of fund as
compared to other funds. Companies in life sciences may fit this
profile, while quicker exits might come from Web 2.0 companies.
Likewise, later-stage investments potentially would generate
returns after a shorter time period than early-stage funds, with a
potentially higher IRR due to the timing of the returns, assuming
equal performance.
multiples on returned capitalthat is, more money back into the
investors pocket. This example also shows that big returns during
the first few years of a funds life can lead to misleadingly high
TVPI and DPI multiples early in the fund. In this example, Fund B
showed TVPI and DPI figures above 5.0x in the first year in the
life of the fund, but the fund ultimately returned only 1.1x at
termination.
The built-in bias of the performance metrics may have greater
implications for certain types of funds, particularly funds that
focus on certain stages or sectors. For instance, funds with
investments concentrated in sectors
fund a: returns spread evenly over 10 years fund b: big return
early in fund
Cost: ($100m) Returns: $200m Gain: $100m
IRR = 14% TVPI = 2.0x
Cost: ($100m)Returns: $110mGain: $10m
IRR = 2191%TVPI = 1.1x
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
2400%
2000%
1600%
1200%
800%
400%
0%
12/3
1/20
01
12/3
1/20
00
12/3
1/20
02
12/3
1/20
03
12/3
0/20
04
12/3
0/20
05
12/3
0/20
06
12/3
0/20
07
12/2
9/20
08
12/2
9/20
09
12/2
9/20
10
12/2
9/20
11
DP
I & T
VP
I
IRR
IRR
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
2400%
2000%
1600%
1200%
800%
400%
0%
12/3
1/20
01
12/3
1/20
00
12/3
1/20
02
12/3
1/20
03
12/3
0/20
04
12/3
0/20
05
12/3
0/20
06
12/3
0/20
07
12/2
9/20
08
12/2
9/20
09
12/2
9/20
10
12/2
9/20
11
DP
I & T
VP
I
DPI TVPI IRR
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VENTURE CAPITAL UPDATE 4
OVERVIEW OF INDUSTRY BENCHMARK SOURCES
The most commonly used industry benchmarks are published by
Cambridge Associates and Thomson Reuters Venture Economics.
Cambridge Associates is a consulting firm that provides advisory
services to institutional investors and in doing so, has access to
financial information for a large number of funds. Thomson Reuters
(formerly Thomson Financial) publishes a range of financial news
and information, such as Private Equity Week and the Venture
Capital Journal. A third benchmarking source, Private Equity
Intelligence (known as Preqin), creates benchmarks using its
Performance Analyst database of fund financials. Preqin also
provides access to separate databases of funds in the market and
limited partner information.
These organizations are more different than they are similar,
not only in their business structure, but in how they gather,
analyze and report benchmarks. Specifically:
The benchmarks use different 1. methodologies for data
collection
The benchmarks use different 2. data samples
The benchmarks provide 3. different performance results
Lets explore each one of these differences in more detail.
1. The benchmarks use different methodologies for data
collection
Performance metrics vary widely from one benchmarking source to
another. One factor is the different methodologies for collecting
data from the funds. Cambridge Associates collects financial
information from its clients investments as well as by soliciting
information from managers, which it aggregates into its database
for calculating performance benchmarks. Thomson Reuters Venture
Economics uses surveys sent to private equity and venture funds
relying on self-reporting. These surveys are not audited, but the
information collected reveals cash flow information. Both
organizations collect this information on a confidential basis.
By contrast, Preqin collects data on fund performance based on
public data sources, typically reports from pension funds and other
institutions that must provide their financial performance reports
as mandated by the U.S. Freedom of Information Act (FOIA) or
similar legislation in foreign countries. These organizations
report performance, rather than cash flows, which form the basis of
calculations by Thomson Reuters and Cambridge Associates.
Because the data are gathered from public sources, Preqin
publishes the performance metrics for specific funds and firms.
That is, it does not keep the fund or firm name confidential for
performance on individual funds. Cambridge Associates and Thomson
Reuters aggregate fund performance information and do not identify
fund or firm names. Preqin advertises that its data have less
selection bias than samples collected via surveys or client
investments because Preqins information would not omit better funds
or worse-performing funds or be skewed upwards by institutional
clients investment picks. However, some in the industry assume that
since Preqin gathers data from funds subject to disclosure, these
investors cannot access the best performing funds and therefore,
Preqins results will be skewed downward.
2. The benchmarks use different data samples
One reason why the performance benchmarks from each of the
providers are so different is because they use different samples of
funds for their calculations. Simply put, different samples of
funds yield different benchmarks. The graph below compares the
number of funds per vintage year from 1995 to 2007 for each of the
benchmark providers.
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While Cambridge Associates typically uses the largest sample
size to calculate benchmarks for almost all of the vintage years
during 1995 to 2007, it is questionable whether even its sample
size of funds per vintage year is large enough to provide efficient
and unbiased estimators of performance.4 In other words, does a
summary statistic of performance based on these sample sizes
reflect actual performance of venture funds in the market?
In statistics, the amount of variance in the population must be
known or estimated in order to determine the appropriate sample
size. The performance of venture funds is known to have a large
amount of variability because the dispersion of returns is large.
And the greater the variation, the larger the sample size required
for the samples metrics to be
statistically significant. Because there is not a precise
estimate of variation of funds performance, its difficult to
estimate an accurate sample size for
venture. However, it is known that these samples are small
percentages of funds in the U.S. market. The graph below shows the
sample size for each of the benchmark providers as a percentage of
funds invested.
The available sample sizes seem small given the perceived
variance in fund performance, but this is beyond the control of the
organizations providing the benchmarks. In one survey of private
equity firm CFOs, almost 40 percent of respondents stated that they
did not send financial information to Thomson Reuters because there
was no reason to do so.5 In fact, there is little incentive for
funds to complete and return surveys of their performance,
particularly if the fund is one of the best or one of the worst
performing.
Sources: Cambridge Associates, Thomson Reuters, and Private
Equity Intelligence. Cambridge Associates and Thomson Reuters data
are as of December 31, 2007; Preqin data are as of various dates
but are the most recent obtained. The number of funds in each
vintage year is the number of active funds based on Thomson Reuters
Fund Statistics Report. Cambridge Associates data were provided at
no charge.
sample size as a percentage of active u.s. venture funds
6
14
18
2623
13
9
17
29
3333
2828
2629
29
21 22
3132
24
15151615
16
13141414
1213
18
1821
272727
15
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
35%
30%
25%
20%
15%
10%
5%
0%
Per
cen
tag
e o
f A
ctiv
e F
un
ds
Vintage Year
Thomson Reuters PreqinCambridge Associates
Sources: Cambridge Associates, Thomson Reuters, and Private
Equity Intelligence. Cambridge Associates and Thomson Reuters data
are as of December 31, 2007; Preqin data are as of various dates
but are the most recent obtained. Cambridge Associates data were
provided at no charge.
number of u.s. venture funds sampled by vintage year
112734
25172316
17
3730
19
355657
44
72
125
162
118
109
77
8273
62
3535
2525
4349
3654
3844
3328
505558
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
2007
180
160
140
120
100
80
60
40
20
0
Nu
mb
er o
f fu
nd
s
Vintage Year
Thomson Reuters PreqinCambridge Associates
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3. The benchmarks provide different performance results
While each benchmarking source purports to report on the
performance of the industry, there is a large variation in
performance metrics among the three providers. The bar graph above
compares pooled IRR performance metrics between Cambridge
Associates and Thomson Reuters. Preqin does not provide benchmark
metrics over these time horizons; rather the data are provided by
fund, firm or vintage year. Note that Cambridge Associates 10-year
pooled IRR figure is almost double the same metric published by
Thomson Reuters. Given that the pooled 10-year IRR metric is more
stable than, for instance, a short-term one-year metric, the large
difference in the long-term benchmark is surprising.
Large differences also remain in the three-year pooled IRR
performance benchmarks.
Do the differences in aggregated performance indicate that these
sources contain completely different collections of funds? An
examination of the sampling distributions and the sample means, or
averages, would provide a definitive answer to this question.
However, the data for individual funds in Cambridge Associates and
Thomson Reuterss samples are not available to conduct these
statistical tests. As a proxy, box and whisker plots help show the
quartile ranges of funds and the best and worst performing funds.
The chart below show the maximum, top quartile, median, lower
quartile and minimum fund performance for vintage year 2000.6 The
top quartile and lower quartile provide the top and bottom edges of
the box; the median is the line in the middle; the minimum and
maximum are dots connected by extended lines.
Sources: Cambridge Associates and Thomson Reuters. Note that
Preqin does not provide cumulative benchmarks over specific time
horizons. Pooled IRR is calculated based on cash flows of all funds
regardless of vintage year during the specified time horizons. All
data are as of December 31, 2007. Cambridge Associates data were
provided at no charge.
comparison of investment horizon benchmarks
40%
35%
30%
25%
20%
15%
10%
5%
0%
Po
ole
d I
RR
(%
)
Thomson Reuters Cambridge Associates
10-Year Venture IRRPerformance
5-Year Venture IRRPerformance
3-Year Venture IRRPerformance
1-Year Venture IRRPerformance
Sources: Cambridge Associates, Thomson Reuters, and Private
Equity Intelligence. Cambridge Associates and Thomson Reuters data
are as of December 31, 2007; Preqin data are as of various dates
but are the most recent obtained. Cambridge Associates data were
provided at no charge.
comparison of irr ranges for vintage 2000
IRR
(%)
40%
20%
0%
-20%
-40%
-60%
-80%Thomson ReutersCambridge Associates
Lower Quartile Minimum Median Maximum Upper Quartile
Preqin
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This simple analysis confirms the wide range of performance
across venture capital fundsnot only within samples, but also
across different benchmarking sources. This disparity in
performance between the best and worst funds is exceptionally
largeparticularly for Cambridge Associates funds in 2000but the
performance of these funds may be outliers compared to other funds
in each sample. Nonetheless, the benchmarking sources show ranges
of more than 10 percentage points between the upper quartile and
lower quartile IRRs and almost 20 percentage points difference in
Preqins sample.
For vintage year 2000, the median fund performance is similar
across the three benchmarking sources, although the IRR is positive
according to Preqin and negative according to Cambridge Associates
and Thomson Reuters.7
Many in the venture industry would argue that a funds
performance must place it in the top quartile in order to achieve
attractive, risk-adjusted returns over time. The box and whisker
plots above show how high the performance can be for some of the
funds in the top quartile (represented by the extended lines on top
of the boxes). The graph below shows the variation in the IRR
performance of the top quartile
fund in samples from Cambridge Associates, Thomson Reuters and
Preqin. The difference in IRR metrics of the sources top quartile
funds was narrow (2 percent) in 2001 and wide (12 percent) in 2005.
The graph also shows that no one benchmark has an upper quartile
fund performance that is consistently higher or lower than the
other benchmarks; moreover, the benchmarks do not trend
together.
OVERCOMING BENCHMARK LIMITATIONS
While benchmarks can provide a quick comparison of one
investment to the performance of another in the same asset class,
many LPs invest in venture capital and private equity to add
diversification to their portfolio and to provide returns that are
not correlated to public
Sources: Cambridge Associates, Thomson Reuters, and Private
Equity Intelligence. Cambridge Associates and Thomson Reuters data
are as of December 31, 2007; Preqin data are as of various dates
but are the most recent obtained. Preqin does not provide IRR
benchmarks for vintage 2007 funds. Cambridge Associates data were
provided at no charge. Note: IRR performance during the first three
years of a fund is typically considered not meaningful.
upper quartile comparison
2000 2001 2002 2003 2004 2005 2006
30%
25%
20%
15%
10%
5%
0%
-5%
Poo
led
IRR
(%)
Thomson Reuters PreqinCambridge Associates
10
10
11
11 11
14
16
12
12
21
24
5
-3
12
47
13
53
9
In the process of benchmarking performance, LPs must decide the
objective of an
investment. Which is it?
Provideareturncommensuratewiththeaddedriskandilliquidityoftheinvestment
Providemoredollarsbacktothefund
Outperformpublicinvestmentsbyacertainmargin
Determining the primary goal of the investment will help to
guide LPs to find the appropriate
benchmarking tool.
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VENTURE CAPITAL UPDATE 8
markets. These LPs often compare the IRR of the venture portion
of their portfolio to the performance of public investments, with
an expectation that the venture portion will return a certain level
higher than public market investments. The logic of this assessment
is based on risk and reward. Venture investing presents greater
risks to an investor than investing in public markets, in part,
because it is a long-term and relatively illiquid investment;
likewise, investors expect greater returns from their venture
investments.
The business of benchmarking venture capital funds has many
complications simply because it is
hard to collect accurate financial data on private investments.
Its also difficult to report consistently on performance due to the
metrics, the sample sizes and the collection methodologies.
With clear shortcomings and inconsistencies in industry
benchmarks, how can investors assess the performance of their
funds? Given the long-term nature of the investment and the lack of
access to information on returns in the private market, accurately
benchmarking venture capital remains elusive.
While individual funds may have little incentive to contribute
their financial
information to benchmarking organizations, SVB Capital believes
that the venture industry as a whole should have an incentive to
create more credible and statistically reliable performance
metrics. With more accurate benchmarks, the venture industry could
assess more fully how funds are performing, especially as compared
to other asset classes, and communicate these results with current
and potential investors.
Today its commonplace to study automotive industry benchmarks
that yield meaningful insights as a basis for decisions. Tomorrow
its possible we will be able to say the same about venture
capital.
Recognizing the limitations of venture capital benchmarking for
assessing performance, SVB Capital recommends supplementing
benchmark analysis with other information. Consider the
following:
Gainabetterunderstandingofportfoliocompaniesandthereturnpotentialoftheactiveportfolio.Annualmeetingscantypicallybe
the place to obtain this information. It is widely known that
one home run in a venture capital portfolio can move the fund into
top-tier
territory. Returns to the top-tier venture capital funds are
typically driven by a few deals.
Becomepart of the conversation.Those closest to the business of
the fundhave good information and instincts about current and
future performance. Discuss the performance of the fund with the
fund managers and learn the details of the companies in the
portfolios
that driveor dragperformance.
Lookatthetrackrecordofindividualventureinvestors,manyofwhomhavemadepreviousinvestmentsatotherfunds.Theperformance
of past investmentsincluding which sectors provided the
returnsmight help to inform expected performance.
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VENTURE CAPITAL UPDATE 9
TELL US WHAT YOU THINK Send your comments and suggestions for
topics to Bronwyn Bailey at [email protected].
Net Asset Value is the market value of the portfolio plus any
cash held by the fund.
See Austin M. Long and Craig J. Nickels, A Method for Comparing
Private Market Internal Rates of Return to Public Market Index
Returns. Manuscript. The University of Texas System, August 28,
1995.
The IRR calculation assumes that distributed capital is
reinvested at the same IRR over the life of the fund, when in fact,
investors may not find similar investment opportunities for each
distribution. See Oliver Gottschalg and Ludovic Phalippou, The
Truth about Private Equity Performance, Harvard Business Review,
December 2007 for this analysis. For a detailed discussion on the
benefits and drawbacks of using IRR as a performance metric, see
Paul Gompers and Josh Lerner, Assessing the Performance of Private
Equity Funds. Manuscript. Harvard Business School, January
2003.
The game of darts can be used as an analogy for the quality of a
sample statistic. The darts of an efficient and unbiased player
would land clustered closely together on the bulls eye of the
target. The darts of a less efficient player would land scattered
around the dartboard, and the darts of a biased player would be
tightly clustered outside the bulls eye.
Results from an informal survey conducted by Thomson Reuters
(formerly Thomson Financial) presented at the Private Equity CFO
Conference, July 2007. Respondents were attendees at the
conference.
Vintage year 2000 was chosen due to the large number of funds in
each sample, which would provide a more conservative estimate of
variation in fund performance. This analysis is limited to IRR
performance because Cambridge Associates does not publish quartile
ranges for DPI and TVPI calculations.
This finding for vintage year 2000 does not support the notion
that public institutions, Preqins data source, have problems
accessing better performing funds.
1
2
3
4
5
6
7
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VENTURE CAPITAL UPDATE 10
fourth quarter 2007 u.s. private equity snapshot
most active venture investors
Source: Dow Jones VentureSource
u.s. venture investing activity
Source: Dow Jones VentureSource
fundraising by u.s.-based venture and lbo/mezzanine firms
Source: Thomson Financial Venture Economics/National Venture
Capital Association
venture investment by region, all industries
Source: Dow Jones VentureOne
$ (MILLIONS)
Firm NameAssets
Under Mgmt Num of Deals
Polaris Venture Partners $ 3,049 18
New Enterprise Associates 8,500 16
Draper Fisher Jurvetson 4,214 15
Atlas Venture 2,100 14
Mohr Davidow Ventures 1,400 13
Sequoia Capital 2,153 13
Accel Partners 4,000 12
Austin Ventures 3,000 11
Bessemer Venture Partners 2,000 11
Duff Ackerman & Goodrich 1,125 11
Ignition Partners 1,475 11
InterWest Partners 2,002 11
Kleiner Perkins Caufield & Byers 2,760 11
Highland Capital Partners 2,964 10
Q4 2007
US RegionNum of
Deals
Num ofInvesting
FirmsAverage Per Deal Sum Inv.
Bay Area 187 267 $ 14.8 $ 2,499.5
Boston Area 77 127 13.4 967.2
New York Metro 48 81 9.2 447.6
San Diego Metro 24 66 19.0 426.7
Washington State 32 59 13.2 424.1
Research Triangle 18 40 20.1 361.7
Texas 35 31 10.6 356.4
Midwest 38 62 8.0 290.2
Potomac 32 56 8.8 278.8
Los Angeles Metro 30 36 8.2 230.9
Philadelphia 15 8 11.5 154.4
Southeast 18 22 9.1 151.0
Colorado 15 33 5.5 82.3
Oregon 4 7 10.1 43.3
$ (MILLIONS)
$ (MILLIONS)
700
600
500
400
300
200
100
0
$10,000
$8,000
$6,000
$4,000
$2,000
$03Q 4Q 1Q 2Q 3Q 4Q2006 2007
DealsAmount Invested ($M)
$ (BILLIONS)
Venture CapitalBuyout and Mezzanine
$80
$70
$60
$50
$40
$30
$20
$10
$03Q 4Q 1Q 2Q 3Q 4Q2006 2007
5
31
6
68 60
6 9
56
9
6168
12
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Venture Capital Update
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VENTURE CAPITAL UPDATE 11
cumulative irr performance (%) by stage (u.s.)
Source: Thomson Financial Venture Economics/National Venture
Capital Association, data as of December 31, 2007
Fund Type
Num of
Funds
CapWtdAvg
Pooled Avg
Upper Quartile Median
LowerQuartile
Early/Seed VC 591 9.2 19.3 16.0 3.3 (4.9)
Seed Stage VC 66 5.5 9.4 13.3 4.4 (1.2)
Early Stage VC 525 9.4 20.2 16.3 3.3 (5.2)
Balanced VC 452 10.0 14.1 15.7 5.6 (0.3)
Later Stage VC 199 6.4 13.7 17.0 7.4 (0.6)
All Venture 1,242 8.9 15.8 16.0 4.9 (2.1)
Small Buyouts 178 8.7 15.4 17.3 7.4 (0.3)
Med Buyouts 112 12.3 17.6 22.2 9.3 (0.1)
Large Buyouts 92 11.3 12.9 19.5 7.3 0.1
Mega Buyouts 124 8.1 12.4 18.0 8.7 0.4
All Buyouts 506 8.9 13.3 18.4 8.0 (0.1)
Mezzanine 72 6.9 8.7 12.6 7.5 1.5
Buyouts and Other PE
668 9.3 12.7 18.0 8.0 0.1
All Priv Equity 1,915 9.2 14.1 16.7 6.3 (1.4)
us. venture liquidity events by industry
Source: Dow Jones VentureOne
2005 2006 2007
Industry IPO M&A IPO M&A IPO M&A
Biopharmaceuticals 14 40 20 29 17 25
Healthcare Services 0 11 0 6 2 8
Medical Devices 7 14 6 23 9 18
Medical IS 1 18 2 16 3 9
Comm. And Networking 3 40 5 49 10 34
Elect. & Computer Hdw. 1 12 1 14 4 9
Information Services 0 43 5 48 6 65
Semiconductors 4 17 2 18 6 18
Software 3 148 7 157 8 144
Other 10 70 8 60 10 68
TOTAL 43 4413 556 420 75 398
u.s. ipo vs m&a transactions for venture-backed
companies
Source: Dow Jones VentureSource
irr performance (%) by vintage year (u.s.)
Source: Thomson Financial Venture Economics/National Venture
Capital Association; data as of December 31, 2007
VintageYear
Numof
Funds
CapWtdAvg
PooledAvg
Upper Quartile Median
Lower Quartile
1996 35 59.6 83.6 113.9 31.0 1.5
1997 62 46.3 49.6 59.7 20.2 (0.8)
1998 77 24.3 19.2 11.9 2.0 (4.0)
1999 109 (7.1) (5.8) 0.9 (6.9) (15.0)
2000 125 0.8 2.1 3.0 (2.5) (7.9)
2001 56 4.3 5.8 11.3 2.6 (3.5)
2002 19 1.0 2.7 3.6 (0.6) (2.4)
2003 16 8.0 8.0 15.7 0.9 (1.6)
2004 23 4.0 7.3 11.8 (1.0) (7.8)
2005 17 1.8 5.2 21.0 3.2 (2.3)
2006 25 (2.7) (0.5) 4.7 (9.6) (20.2)
2007 11 (31.0) (0.1) (21.7) (26.1) (60.2)
Number of IPOs Number of M&As
160
140
120
100
80
60
40
20
03Q 4Q 1Q 2Q 3Q 4Q2006 2007
9
120
18
83
13
10594
24
100
11
25
110
-
Venture Capital Update
ASSESSING FUND PERFORMANCEMay 2008
VENTURE CAPITAL UPDATE 12
price change
venture capital barometertm
Source: Fenwick & West L.L.P.
The direction of price changes for 103 San Francisco Bay Area
companies receiving financing, compared to their previous
rounds.
Average per share % price change from previous round of Silicon
Valley companies receiving VC investment in the applicable quarter.
Complete report available at
http://www.fenwick.com/vctrends.htm
Source: Fenwick & West L.L.P.
u.s. venture-backed m&a activity
Source: Dow Jones VentureOne
$ (BILLIONS)
8
Number DealsAmount Paid ($B)
140
120
100
80
60
40
20
0
8
109
12
16
122
83
105
94 100
110
3Q 4Q 1Q 2Q 3Q 4Q2006 2007
67
90%80%70%60%50%40%30%20%10%
0%
DownFlatUp
1124
67
228
81
1112
79
9 7
79
14 9
69
22
Net Results of Rounds
90%80%70%60%50%40%30%20%10%
0%3Q 4Q 1Q 2Q 3Q 4Q2006 2007
6949
75 74 79
55
$18
$16
$14
$12
$10
$8
$6
$4
$2
0
9
3Q 4Q 1Q 2Q 3Q 4Q 2006 2007
-
Venture Capital Update
ASSESSING FUND PERFORMANCEMay 2008
VENTURE CAPITAL UPDATE 13
*This update is for informational purposes only and is not a
solicitation or recommendation that any particular investor should
invest in any particular industry, security, or fund.
This material, including without limitation to the statistical
information herein, is provided for informational purposes only.
The material is based in part on information from third-party
sources that we believe to be reliable, but which have not been
independently verified by us and for this reason we do not
represent that the information is accurate or complete. The
information should not be viewed as tax, investment, legal or other
advice nor is it to be relied on in making an investment or other
decision. You should obtain relevant and specific professional
advice before making any investment decision. Nothing relating to
the material should be construed as a solicitation, offer or
recommendation to acquire or dispose of any investment or to engage
in any other transaction.
2008 SVB Financial Group. All rights reserved. Member Federal
Reserve. SVB, SVB> and SVB>Find a way are all trademarks of
SVB Financial Group. SVB Capital is a non-bank member of SVB
Financial Group. Products and services offered by SVB Capital are
not insured by the FDIC or any other Federal Government Agency and
are not guaranteed by Silicon Valley Bank or its affiliates. Rev.
06-02-08.
Snapshot 2: