Venture Capital Shows Signs of a Performance Turnaround: BlackRock’s eFront

After five straight quarters of negative results, has venture capital turned a corner?


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Venture capitalists and their investors finally have something to celebrate this year, even if it doesn’t exactly warrant a party.

Rising interest rates bruised equity valuations and venture capital performance in 2022 and at the beginning of this year, but the venture market is finally showing signs of a turnaround. After five consecutive quarters of negative performance, venture capital funds delivered a return of 0.2 percent in the second quarter this year, according to a report by BlackRock’s eFront, which calculated the return using the cash flow information of 2,431 VC funds on a net-of-fee basis. Out of those funds, there was a mix of early-stage (1,145), balanced (351), and late-stage (935) firms.

But “it would be a bit facetious to declare that the first half of 2023 produced a venture market that many did not see coming. VC continues to experience doldrums that accompany a post-exuberance hangover,” PitchBook analysts wrote in a midyear update to their 2023 report on venture capital.

“Still, venture [capital] continues forward at a faster pace than pre-COVID-19, but within a narrative of gloom. Seed-stage pre-money valuations are just as high as in 2021; the Unicorn Index has not yet turned negative; and megadeals are still happening, though at a muted pace. Deal counts and deal values have only now fallen below the long-term trendline, thus suggesting that there may not be much further to fall,” according to PitchBook’s report.

Fundraising for venture firms (like it has for private equity and other asset classes) has been tough sledding. In the third quarter of 2023, 178 VC funds closed that raised an aggregate of $16.5 billion, the lowest quarterly total since 2015, according to the third-quarter venture capital report of Preqin, another private markets data firm.

Venture firms and their investors are likely not happy about that performance — although effectively breaking even is better than negative returns and other assets didn’t do much better. Private markets as a whole are on an upward trajectory in terms of performance, achieving their third consecutive positive quarter. Second-quarter data indicated quarterly growth of 1.3 percent, “reflecting a marginal moderation in the pace of recovery and expansion within the private market sector,” according to eFront.

Out of all the asset classes tracked, the global leveraged buyout market had the best resurgence in the last three quarters, with a growth rate of 2.1 percent in the second quarter.

The variation between private market fund performance also narrowed between the fourth quarter of 2022 and the second quarter of 2023. The internal rate of return gap between funds in the best quartile and those in the worst quartile decreased from 14.9 percent to 13.6 percent during the second quarter.