Professional Documents
Culture Documents
written by:
Bronwyn Dylla Bailey
Research Director
650.855.3021
bbailey@svb.com
Aaron Gershenberg
Managing Partner
650.855.3011
agershenberg@svb.com
The
ratio
of
cumulative
The
sum
of
cumulative
Cost: ($100m)
Returns: $110m
Gain:
$10m
11
10
20
/2
9/
09
20
9/
/2
12
08
20
9/
/2
12
07
20
9/
/2
12
12
06
20
12
/3
20
0/
/3
0/
05
04
20
/3
0/
12
03
20
0/
/3
12
02
20
/3
1/
12
01
20
1/
/3
12
IRR
0%
20
11
10
20
/2
9/
09
20
9/
/2
12
08
20
9/
/2
IRR = 14%
TVPI = 2.0x
12
07
20
9/
/2
12
06
20
/3
0/
12
05
20
0/
/3
12
04
20
/3
0/
12
03
20
0/
/3
12
02
20
/3
1/
12
01
20
1/
/3
12
12
00
20
20
1/
1/
/3
12
Cost: ($100m)
Returns: $200m
Gain: $100m
400%
1/
0%
800%
1.0
/3
400%
12
1.0
1200%
2.0
00
800%
3.0
20
2.0
1600%
4.0
12
1200%
2000%
5.0
1/
3.0
4.0
IRR
1600%
2400%
6.0
2000%
5.0
/3
7.0
2400%
6.0
12
IRR
/3
7.0
TVPI
12
DPI
IRR = 2191%
TVPI = 1.1x
OVERVIEW
OF
INDUSTRY
BENCHMARK SOURCES
Number of funds
140
118
120
100
73
80
40
20
0
Preqin
162
160
60
Thomson Reuters
49
36
25
1995
43
35
25
62
35
82
125
109
77
72
54
38
57
56
44
35
30
37
17
19
16
58
55
28
33
23
17
50
44
34
27
11
25
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Vintage Year
Sources: Cambridge Associates, Thomson Reuters, and Private Equity Intelligence. Cambridge Associates
and Thomson Reuters data are as of December 31, 2007; Preqin data are as of various dates but are the
most recent obtained. Cambridge Associates data were provided at no charge.
30%
29
32
27
27
25%
20%
15%
10%
21
15
31
28
29
14
29
26
23
26
13
33
28
27
21
15
Preqin
33
22
16
Thomson Reuters
12
18
24
15
18
14
15
14
16
13
17
18
13
14
6
5%
0%
1995
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Vintage Year
Sources: Cambridge Associates, Thomson Reuters, and Private Equity Intelligence. Cambridge Associates
and Thomson Reuters data are as of December 31, 2007; Preqin data are as of various dates but are the
most recent obtained. The number of funds in each vintage year is the number of active funds based on
Thomson Reuters Fund Statistics Report. Cambridge Associates data were provided at no charge.
40%
Cambridge Associates
35%
30%
25%
20%
15%
10%
5%
0%
Sources: Cambridge Associates and Thomson Reuters. Note that Preqin does not provide cumulative
benchmarks over specific time horizons. Pooled IRR is calculated based on cash flows of all funds regardless
of vintage year during the specified time horizons. All data are as of December 31, 2007. Cambridge
Associates data were provided at no charge.
Minimum
Median
Maximum
Upper Quartile
40%
20%
0%
IRR (%)
-20%
-40%
-60%
-80%
Cambridge Associates
Thomson Reuters
Preqin
Sources: Cambridge Associates, Thomson Reuters, and Private Equity Intelligence. Cambridge Associates
and Thomson Reuters data are as of December 31, 2007; Preqin data are as of various dates but are the
most recent obtained. Cambridge Associates data were provided at no charge.
OVERCOMING BENCHMARK
LIMITATIONS
While benchmarks can provide a
quick comparison of one investment
to the performance of another in
the same asset class, many LPs
invest in venture capital and private
equity to add diversification to their
portfolio and to provide returns
that are not correlated to public
30%
Thomson Reuters
Preqin
24
25%
21
20%
16
15%
10%
5%
0%
-5%
11
10
10
13
11
14
12
12
12
11
7
4
-3
2000
2001
2002
2003
2004
2005
2006
Sources: Cambridge Associates, Thomson Reuters, and Private Equity Intelligence. Cambridge Associates
and Thomson Reuters data are as of December 31, 2007; Preqin data are as of various dates but are
the most recent obtained. Preqin does not provide IRR benchmarks for vintage 2007 funds. Cambridge
Associates data were provided at no charge. Note: IRR performance during the first three years of a fund is
typically considered not meaningful.
information
to
benchmarking
organizations, SVB Capital believes
that the venture industry as a whole
should have an incentive to create
more credible and statistically reliable
performance metrics. With more
accurate benchmarks, the venture
industry could assess more fully
how funds are performing, especially
as compared to other asset classes,
and communicate these results with
current and potential investors.
Today its commonplace to study
automotive industry benchmarks
that yield meaningful insights as a
basis for decisions. Tomorrow its
possible we will be able to say the
same about venture capital.
Recognizing the limitations of venture capital benchmarking for assessing performance, SVB Capital recommends supplementing
benchmark analysis with other information. Consider the following:
Gain a better understanding of portfolio companies and the return potential of the active portfolio. Annual meetings can typically be
the place to obtain this information. It is widely known that one home run in a venture capital portfolio can move the fund into top-tier
territory. Returns to the top-tier venture capital funds are typically driven by a few deals.
Become part of the conversation. Those closest to the business of the fund have good information and instincts about current and
future performance. Discuss the performance of the fund with the fund managers and learn the details of the companies in the portfolios
that driveor dragperformance.
Look at the track record of individual venture investors, many of whom have made previous investments at other funds. The performance
of past investmentsincluding which sectors provided the returnsmight help to inform expected performance.
Net Asset Value is the market value of the portfolio plus any cash held by the fund.
See Austin M. Long and Craig J. Nickels, A Method for Comparing Private Market Internal Rates of Return to Public Market Index Returns. Manuscript. The
University of Texas System, August 28, 1995.
The IRR calculation assumes that distributed capital is reinvested at the same IRR over the life of the fund, when in fact, investors may not find similar investment
opportunities for each distribution. See Oliver Gottschalg and Ludovic Phalippou, The Truth about Private Equity Performance, Harvard Business Review,
December 2007 for this analysis. For a detailed discussion on the benefits and drawbacks of using IRR as a performance metric, see Paul Gompers and Josh Lerner,
Assessing the Performance of Private Equity Funds. Manuscript. Harvard Business School, January 2003.
The game of darts can be used as an analogy for the quality of a sample statistic. The darts of an efficient and unbiased player would land clustered closely together
on the bulls eye of the target. The darts of a less efficient player would land scattered around the dartboard, and the darts of a biased player would be tightly
clustered outside the bulls eye.
Results from an informal survey conducted by Thomson Reuters (formerly Thomson Financial) presented at the Private Equity CFO Conference, July 2007.
Respondents were attendees at the conference.
Vintage year 2000 was chosen due to the large number of funds in each sample, which would provide a more conservative estimate of variation in fund performance.
This analysis is limited to IRR performance because Cambridge Associates does not publish quartile ranges for DPI and TVPI calculations.
This finding for vintage year 2000 does not support the notion that public institutions, Preqins data source, have problems accessing better performing funds.
Deals
Amount Invested ($M)
$10,000
700
$8,000
$6,000
$4,000
$2,000
2Q
3Q
4Q
18
8,500
16
15
4,214
Atlas Venture
2,100
14
500
1,400
13
Sequoia Capital
2,153
13
400
Accel Partners
4,000
12
300
Austin Ventures
3,000
11
2,000
11
1,125
11
Ignition Partners
1,475
11
InterWest Partners
2,002
11
100
1Q
2007
$ 3,049
600
200
3Q
4Q
2006
Num of Deals
$ (MILLIONS)
$ (MILLIONS)
$0
Assets
Under Mgmt
Firm Name
2,760
11
2,964
10
Q4 2007
Num of
Num of Investing
Deals
Firms
Average
Per Deal
$ (MILLIONS)
Sum Inv.
187
267
$ 14.8
$ 2,499.5
Boston Area
77
127
13.4
967.2
48
81
9.2
447.6
24
66
19.0
426.7
Washington State
32
59
13.2
424.1
$50
Research Triangle
18
40
20.1
361.7
$40
Texas
35
31
10.6
356.4
Midwest
38
62
8.0
290.2
$30
$20
Potomac
32
56
8.8
278.8
30
36
8.2
230.9
Philadelphia
15
11.5
154.4
Southeast
18
22
9.1
151.0
Colorado
15
33
5.5
82.3
10.1
43.3
Oregon
$ (BILLIONS)
$80
$70
$60
68
60
31
$10
$0
68
61
56
5
3Q
2006
6
4Q
6
1Q
2007
9
2Q
3Q
12
4Q
10
Cap
Wtd
Avg
Pooled
Avg
Upper
Quartile Median
Lower
Quartile
1996
35
59.6
83.6
113.9
31.0
1.5
1997
62
46.3
49.6
59.7
20.2
(0.8)
1998
77
24.3
19.2
11.9
2.0
(4.0)
1999
109
(7.1)
(5.8)
0.9
(6.9)
(15.0)
2000
125
0.8
2.1
3.0
(2.5)
(7.9)
591
9.2
19.3
16.0
3.3
Seed Stage VC
66
5.5
9.4
13.3
4.4
(1.2)
Early Stage VC
525
9.4
20.2
16.3
3.3
(5.2)
Balanced VC
452
10.0
14.1
15.7
5.6
(0.3)
Later Stage VC
199
6.4
13.7
17.0
7.4
(0.6)
1,242
8.9
15.8
16.0
4.9
(2.1)
Small Buyouts
178
8.7
15.4
17.3
7.4
(0.3)
Med Buyouts
112
12.3
17.6
22.2
9.3
(0.1)
Large Buyouts
92
11.3
12.9
19.5
7.3
0.1
Mega Buyouts
124
8.1
12.4
18.0
8.7
0.4
506
8.9
13.3
18.4
8.0
(0.1)
72
6.9
8.7
12.6
7.5
1.5
668
9.3
12.7
18.0
8.0
0.1
1,915
9.2
14.1
16.7
6.3
(1.4)
All Venture
56
4.3
5.8
11.3
2.6
(3.5)
2002
19
1.0
2.7
3.6
(0.6)
(2.4)
2003
16
8.0
8.0
15.7
0.9
(1.6)
2004
23
4.0
7.3
11.8
(1.0)
(7.8)
All Buyouts
2005
17
1.8
5.2
21.0
3.2
(2.3)
Mezzanine
2006
25
(2.7)
(0.5)
4.7
(9.6)
(20.2)
2007
11
(31.0)
(0.1)
(21.7)
(26.1)
(60.2)
Cap
Wtd Pooled
Upper
Lower
Avg
Avg Quartile Median Quartile
Early/Seed VC
2001
Num
of
Funds
(4.9)
Number of IPOs
Number of M&As
Industry
2005
2006
2007
IPO M&A
IPO M&A
IPO M&A
160
140
120
9
13
100
24
11
18
80
60
25
120
83
40
105
110
94
100
20
0
3Q
2006
4Q
1Q
2007
2Q
3Q
4Q
Biopharmaceuticals
14
40
20
Healthcare Services
Medical Devices
Medical IS
Comm. And Networking
29
17
25
11
14
23
18
18
16
40
49
10
34
12
14
Information Services
43
48
65
Semiconductors
17
18
18
Software
148
157
144
Other
10
70
60
10
68
TOTAL
43
4413
556
420
75
398
11
price change
$18
$16
The direction of price changes for 103 San Francisco Bay Area companies
receiving financing, compared to their previous rounds.
$ (BILLIONS)
140
110
105
$14
94
83
$12
100
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
80
16
$8
$6
10
8
12
60
40
9
20
$2
0
120
100
$10
$4
Down
Flat
Up
122
3Q
4Q
2006
1Q
2007
2Q
3Q
4Q
67
24
9
3Q
2006
22
11
4Q
81
79
67
9 12
1Q
2007
14
11 8
2Q
79
7
3Q
69
22
9
4Q
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
69
75
79
74
49
3Q
2006
55
4Q
1Q
2007
2Q
3Q
4Q
12
*This update is for informational purposes only and is not a solicitation or recommendation that any particular investor should invest in any particular industry,
security, or fund.
This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on
information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not represent
that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an
investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material
should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction.
2008 SVB Financial Group. All rights reserved. Member Federal Reserve. SVB, SVB> and SVB>Find a way are all trademarks of SVB Financial Group. SVB
Capital is a non-bank member of SVB Financial Group. Products and services offered by SVB Capital are not insured by the FDIC or any other Federal Government
Agency and are not guaranteed by Silicon Valley Bank or its affiliates. Rev. 06-02-08.
13