Venture Capital Firms in a Pickle

(July 28, 2010) — Despite slight improvement in initial public offerings and mergers & acquisitions, the venture capital industry is still shaky, which could cause difficulties for venture firms seeking to raise more capital in 2011 or 2012.

Cambridge Associates and the National Venture Capital Association showed in a report released today that 10-year returns for VC fell negative 3.7% for the period ending March 31.

While VC returns for the 10-year period outperformed the Nasdaq’s negative 6.3%, the return was worse than the Dow Jones Industrial Average which was up 2.3% for that period.

But Peter Mooradian of Cambridge Associates said he believes the 10-year returns may have bottomed out, indicating his faith in bight news ahead.

“We continue to see a decline in the 10-year return number but believe it will bottom-out in the mid-negative single digits over the next two quarters,” Mooradian said in a release. “Sustained improvement in the exit markets should result in the figure returning to break even or modestly positive territory in the second half of 2011.”

During the quarter ending March 31, 2008, the Cambridge Associates LLC U.S. Venture Capital Index fell 1.8%, ending its string of 12 positive quarters. Except for those started in 2006, on average, venture capital funds launched between 1999 and 2007 produced negative returns for the quarter, with the funds started between 1999 and 2001 declining the most, Cambridge Associates said in a release. The index’s three largest sectors, health care, information technology, and software, all fell during the quarter, with health care performing the worst.