Ten-year venture capital returns drop as boom years fade away

Venture capital firms can’t boast 10-year returns riding on the golden era of IPOs anymore.

Ten-year returns have fallen by more than half compared to a year ago as the late 1990s tech boom no longer gets included, according to the National Venture Capital Association. They fell to 14.3 percent for the 10-year period ending on June 30, from 33.9 percent a year earlier. Will we see the same effect for 15 or 20-year returns down the line? Only time will tell.

With the IPO market largely shut off because of the financial meltdown last fall, venture capital firms have had few avenues for exits. Plus, we’ve written about the broader issue facing the industry — in the go-go 1990s, blowout IPOs attracted a rush of capital that brought more competition for returns and thus lower profits. Now foundations and pension funds are re-evaluating how much they’ll allocate to alternative asset classes like venture capital, and the weaker firms are washing out.

Given its riskier nature, venture capital outperformed other conventional asset classes. Although U.S. equity markets have recovered since last fall, they’re still struggling to match where they were a decade ago. So the venture capital index returned 14.3 percent over 10 years, while the Dow Jones Industrial Average was down 0.4 percent and the Standard & Poor’s 500 Index had fallen 2.2 percent in the same period. That’s to be expected — it’s not something to call home about.