KUHN CAPITAL Thursday, October 19, 2017
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VC's See Red

October 15

Today's Boston Globe reports that venture capitalists -- with continuing weak demand bedeviling their younger portfolio companies and with their exits even from older healthy portfolio companies blocked by a shut IPO window -- on average saw a negative return on investment of 27% for the 12 months ending June 30.

This performance compares to a three-year annualized return of 26.5% and a five-year average per-year gain of 30.6%. Particularly hard-hit have been early-stage VC's, with a negative yearly return of 35.3%, while later-stage VC's earned a negative 20.5%. Even buy-out firms showed a loss of 11.5% during the period, with an anemic five-year average ROI of 3.4%, claims the Globe (we find this last number hard to believe).

Continuing poor VC performance, not expected to change until an economic turn-around, has raised calls among limited partner investors for more public disclosure of fund performance, so that they can compare firm effectiveness.

We think the traditional secrecy of VC's, coupled with the illiquidity of limited partner investments in VC's, will eventually lead to demands that many venture capitalists agree to list their larger funds' equity on public markets, or at least find a way to disclose performance more transparently.


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