Venture capitalists struggle: Returns drop 2.9 percent in Q1

Venture capitalists saw the returns on their investments drop an average of 2.9 percent during the quarter ending March 31, 2009, according to a survey by research firm Cambridge Associates and the National Venture Capital Association.

This is the third consecutive quarterly decline, but at least it’s an improvement from the last quarter of 2008, when returns plummeted 12.5 percent.

The returns data, which is self-reported by VC firms, lags behind data from other parts of the economy, however: Data for venture capital performance in the second quarter of the year, when the economy was still weak, still isn’t in yet. So VCs are nowhere close to being out of the woods.

While the survey looked at how the average venture capital firm portfolio performed over the first quarter, it also looked at VC performance over long periods of time. Here, performance also dropped over the one, three, five and 10-year timeframes. Despite the declines, venture capitalists outperformed other major market indices (Dow Jones Industrial Average, NASDAQ Composite and S&P 500) across all of the time horizons, the survey found.

It’s important to note that the VC data is not as transparent as other, pubic market indices. For example, if poor performing VC firms drop off the radar by closing up shop, they may stop reporting their negative returns to Cambridge — and so Cambridge Associates’ data may be more rosy than it should be. Cambridge’s database of venture capital funds is proprietary. Cambridge says it tracks 1,271 venture funds formed from 1981 through 2009.

Full report is here.

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