Venture Investing Hits Short-Term Bumps

Aug. 2, 2005--Despite fluctuations in the performance of short term venture capital, venture investing totals continued to grow in the second quarter of this year, reaching a total of $5.8 billion invested in 750 companies. These figures show a rise of 19 percent over the first quarter's numbers of $4.9 billion. Venture investing for the first half of $10.6 billion is on par to match the investment totals for the full year of 2004 of $21 billion.

Performance numbers presented a mixed message to investors at the close of the first quarter as short term returns declined, but long term returns remained steady. According to Thomson Venture Economics and the National Venture Capital Association, both one-year and five-year investment horizons saw a decline. The decline in one-year returns can be traced to a less active IPO market from previous quarters, as only ten venture backed companies went public in the first quarter. Experts at the NVCA attributed the continued decline of five-year performance due to the realized losses taken by firms at the end of the Internet bubble cycle.

More positive news was seen in the returns for both the ten- and twenty-year horizons, which remained steady at the end of the first quarter at 25.4 percent and 15.6 percent respectively. Private equity also continued to outperform both the NASDAQ and the S&P 500 for the long term with a 12.5 percent return.

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