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Venture Capital Investment Performance Improves Through 2010

New York Stock Exchange entrance (A. Kotok)

(A. Kotok)

Returns on venture capital (VC) investments continued to improve for the fourth quarter and all of 2010, for most time horizons stretching back to 1981, and in some cases exceeding the benchmark stock indexes. These data are contained in the latest Cambridge Associates U.S. Venture Capital Index, prepared for the National Venture Capital Association.

For 2010, VC investments returned 13.5 percent to investors, with late- and expansion-stage funds returning 28.2 percent, well outperforming early stage (13.1%) and multi-stage (8.5%) funds. Over a five-year period, the 5.7 percent return for VC investors beat the Dow-Jones Industrial Average (4.3%), Standard & Poors 500 (2.3%), and NASDAQ Composite (3.8%) indexes.

For science and engineering companies, 2010 meant solid returns for VC investors making investments last year. In chemicals/materials, health care/biotech, energy, environmental, and information technology sectors, one-year investment returns ranged from 29.4 percent for environmental companies to 179.7 percent for chemical and materials enterprises. Electronics firms, on the other hand, returned only 1.3 percent on new investments.

Over five years (since 2006), however, investment returns for science and engineering companies are considerably less sparkling. Only information technology enterprises have a double-digit rate of return (18.6%), while energy (7.9%) and health care/biotech (4.0%) companies returned under 10 percent for the period. Investments in chemicals and materials, environmental, and electronics companies failed to break even over the five-year time frame.

The Cambridge Associates U.S. Venture Capital Index is an end-to-end calculation based on data compiled from 1,298 U.S. venture capital funds (863 early stage, 168 late and expansion stage, 264 multi-stage and 3 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2010.

Read More: IPOs, Mergers for Venture-Funded Companies Gain in 2010

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