Venture capital returns reached an all-time high in 2020, even as global economies were decimated by the coronavirus pandemic.
As of the third quarter — the latest period for which returns are available — venture capital funds globally had delivered “exceptional performance” for the year, according to a report from eFront, a BlackRock-owned financial software and research company.
Data from eFront show that venture capital returns reached a record-high multiple of 1.64x in the second quarter of 2020. These return multiples stayed elevated at 1.63x in the third quarter, eFront said. The company used multiples of invested capital, or TVPI, to analyze venture capital returns.
“Thus far, it is difficult to find any impact of the Covid-19 pandemic on the performance of active VC funds,” eFront said in the report.
It’s not just venture capital performance that hit all-time highs in 2020. U.S. venture capital funds also set new records in deal making, exits, and fundraising last year, according to a January 14 report from PitchBook and the National Venture Capital Association. The report said that deal value topped $150 billion for the first time in 2020, while exit value hit a record $290 billion after a surge of public listings in the second half of the year. In addition, new venture capital funds raised $73.6 billion in their biggest haul ever, PitchBook and the NVCA said.
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According to eFront, the new performance heights achieved by active venture capital funds in 2020 are part of a longer trend of increasing multiples over the last decade. “In terms of performance, active VC funds have so far gone from record to record,” the report stated. “This evolution echoes the progression of the valuation of listed tech firms.”
While industry return multiples are at all-time highs, eFront warned that investing in venture capital has also gotten riskier. According to the report, return dispersion — or the difference in performance between top and bottom 5 percent of managers — also reached an all-time high in 2020, with the TVPI spread peaking at 1.98x in the second quarter.
In the third quarter, the top 5 percent of managers delivered return multiples of 2.75x, while performance for the bottom 5 percent was 0.79x — a gap of 1.96x.
“This divergence from historical patterns could signal more challenging market conditions in which some managers thrive, while others increasingly struggle,” eFront said.