Following a rapid reversal of fortunes at the turn of the millennium, the venture capital (VC) industry has experienced largely lacklustre returns, which have led to tough fundraising conditions for all but a select group of top-tier managers.
However, a Preqin report finds there have been some encouraging signs across the industry, with market conditions becoming more favourable, returns improving and fundraising picking up as investors take note.
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The pattern for VC returns shows clear underperformance relative to other strategies over 10 years, with an improving picture more recently.
The last three- and one-year periods show VC returns have improved from 12.7% for the three-year period to March 2014 to 27% for the one-year period to March 2014, outperforming all other strategies.
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The report also notes that US$38 billion has been raised by 220 VC funds, reaching a final close in 2014 as of Oct. 14, already surpassing the US$31 billion raised by 274 funds that closed in 2013.
And 70% of VC funds closed in 2014 have closed at or above their target, up from 63% of funds closed in 2013.
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“In recent years, however, there has been a notable pickup in the fundraising market, coupled with a strong deals and exit environment,” says Christopher Elvin, head of private equity products at Preqin. “The turnaround in venture capital fortunes is both welcome and highly significant for the industry, and especially for investors looking for investment opportunities going forward.”