Jul. 24–Venture capitalists continue to lose money, with the average firm suffering a one-year loss of 29.1 percent through March 31, according to the latest industry data released Wednesday.
That’s the ninth consecutive quarter of negative returns, marking the longest drought the industry has ever seen.
However, there are signs of a possible turnaround.
The public stock market — namely the tech-laden Nasdaq stock market — performed well during the second quarter, rising 21 percent. The venture industry tends to follow the public markets. An uptick in the Nasdaq may coincide with a readiness by investors to accept more initial public offerings, which is the best way for venture capitalists to realize profits on their investments.
“It’s a cause for optimism,” said Toby Walters, research publications manager at Venture Economics, which released the report Wednesday together with the National Venture Capital Association.
Over the past two years, most companies incubated by venture capitalists have either died or been sold for pennies on the dollar.
Venture firms typically invest their funds into start-ups over a 10-year period, and changing market conditions can influence their decisions on whether to write down or mark up a company’s value in the short term. Actual returns are really only known at the end of a fund’s life.
Still, the once-buoyant industry has taken a steep downturn in the past three years. Venture capital funds lost an average of 17.1 percent in the three years ended in March, marking the industry’s worst 36-month showing ever. By contrast, venture capitalists posted an average three-year gain of 41 percent through March 2002.
The losses have coincided with a near-total refusal by investors over the past two years to buy stock in tech initial public offerings. However, there are signs of change:
FormFactor, a Livermore maker of computer-chip testing equipment, went public last month at $14 a share. The shares have since gained 34 percent, closing at $18.80 Wednesday. Fremont DVD software maker InterVideo went public last week, also at $14 a share, and the company’s shares have surged 44 percent, closing at $20.18 Wednesday.
The Associated Press contributed to this story.
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