Skip to main content

Venture Capital Enjoys Record Performance In 2019

eFront's latest private equity report shows that venture capital funds globally delivered strong performance in 2019. Funds globally recorded an increase in TVPI of 10.5% year on year, reaching 1.632x in Q4 – a record high (see Figure 1, below). Active venture funds have capitalised on favourable macro-economic conditions and mirrored the significant uptick of listed stock prices. This represents the first time that the TVPI of active venture capital funds has broken the 1.6x threshold, setting another record high. 

Despite the onset of the Covid-19 pandemic and associated economic crisis, Q1 2020 consolidated this position. It is possible that Q4 2019 therefore marked a peak, with 2019 and 2020 so far sitting clearly above the average multiple over ten years, breaking out from a relatively long period of stability. This deviation from the average will be tested by the events unfolding in 2020.

Figure 1 - Return evolution of active VC funds

eFront

Source: eFront Insight, As of Q1, 2020

At the same time as performance rose, venture funds also saw a reduction in risk. Overall, the TVPI spread between the top and bottom performers has been relatively stable over the past five years (Figure 2). This relative stability signals that fund managers have collectively benefited from supportive market conditions.

However, Q4 2019 and Q1 2020 recorded a decrease in the spread of TVPI, which, combined with the increase in performance means the trend cannot merely be attributed to a few top performers, but covers the VC industry more broadly. Therefore, we are witnessing a simultaneous favourable development, including stronger performance and a reduction in selection risk.

2020 will be a test for VC fund managers. The deviation might decrease as it did in 2016-2017 or confirm the increase of 2019, depending on the deployment of new capital and the evolution of valuations.

Figure 2 - Risk evolution of active VC funds

eFront

Source: eFront Insight, As of Q1, 2020

Time-to-liquidity, meanwhile, stabilised in 2019, and Q1 2020 confirms the convergence of this measure to 3.5 years (Figure 3). That should be good news, since this signals that fund investors continue to receive significant distributions. So far, 2020 confirms the trend initiated in 2019 towards longer holding periods, as managers take more time to grow portfolio companies. The challenging conditions of the first semester 2020 are expected to accentuate this trend. 

Figure 3 - Liquidity evolution of active VC funds

eFront

Source: eFront Insight, As of Q1, 2020

Looking at individual vintage years, the only significant change is that the TVPI of 2013 has increased and now outperforms significantly the historical average (Figure 4). This vintage year joined 2012 and 2015 in the group of clear outperformers, with 2012 standing out as the best performer in recent years, with a TVPI of more than 2.0x in both the US and Western Europe.

While Q4 2019 was favourable to US VC funds, it was muted for Western European ones. Q1 2020 then led to a stabilisation or small decrease of TVPIs in both geographical areas. 

Figure 4 - Evolution of multiples of active global VC funds

eFront

Source: eFront Insight, As of Q1, 2020


© The Sortino Group Ltd

All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency or other Reprographic Rights Organisation, without the written permission of the publisher. For more information about reprints from AlphaWeek, click here.