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Assessing Fund Performance:

Using Benchmarks in Venture Capital


Venture Capital Update
May 2008

written by:
Bronwyn Dylla Bailey
Research Director
650.855.3021
bbailey@svb.com
Aaron Gershenberg
Managing Partner
650.855.3011
agershenberg@svb.com

View the Fourth Quarter


2007 U.S. Private Equity
Snapshot

ASSESSING FUND PERFORMANCE


May 2008

The goal of benchmarking is to measure


comparative performance. When it
comes to cars and other manufactured
products, measurements are precise
and benchmarks are consistently
applied. As a result, benchmarks create
value by identifying performance gaps
and enabling better decision making
based on facts. Venture benchmarks,
however, are a different story.

venture capital industry benchmarks.


We explain the metrics and methods
and review the benefits and limitations
of benchmarks commonly used in the
industry. It is our hope that a better
understanding of benchmarking
across the investment community
can lead to improved means of
developing and gaining value from
the benchmarks.

As a way to compare the performance


of venture capital funds over time,
available industry benchmarks
can be inconsistent and confusing.
Not surprisingly, LPs often seek
independent verification of these
claims. To assess the performance
of our own funds, SVB Capital
continuously examines the best
methods of using these statistics.

WHY WE NEED BENCHMARKS

In this issue of Venture Capital Update,


SVB Capital shares our findings about

Making an investment in venture


capital is a long-term commitment,
with 10 years being the typical lifespan
of a fund. During this period, LPs
receive quarterly financial reports on
capital calls and distributions related
to their investment. However, they
also need to understand how their
investment is performing while the
capital is put to work during the Jcurve and before the funds portfolio

VENTURE CAPITAL UPDATE

Venture Capital Update

is completely realized. Financial


statements alone will not provide this
perspective, so LPs typically turn to
benchmarks.
In addition to gauging the returns
they might expect over time, LPs
also require a way to compare the
performance of investments across
their portfolio. This is true even
when investments are in different
asset classes such as public equity
and private equity, and regardless
of whether the LP is a private
individual, endowment, private or
public pension fund.
But benchmarks are also an important
indicator for venture capitalists
(VCs). Sizing up the performance of
a fund in the middle of its life cycle
is key to assessing how portfolio
companies are performing relative to
the market.
PERFORMANCE METRICS:
APPLES AND ORANGES
When assessing the return-oninvestment performance of a venture
fund, three different metrics are
typically used:
internal rate of return (IRR)
distributions to paid-in capital
(DPI)
total value to paid-in capital
(TVPI)

ASSESSING FUND PERFORMANCE


May 2008

IRR provides an effective rate of


return based on cash flows and current
valuations of the fund portfolio, while
DPI shows the realized portion of the
portfolio that was distributed to the
LP as a multiple of the contributed
capital. By comparison, TVPI
provides a multiple value on the
entire portfolioboth distributed
capital and the net asset value of the
portfolio.1
Which of these metrics is the best
assessment of fund performance? The
short answer is, it depends. Many
LPs rely on IRR measurements of
The performance of a venture capital
fund can be calculated via at least one
of the following metrics:
IRR: The annualized effective return
rate which can be earned on the
contributed (invested) capital, i.e. the
yield on the investment.
DPI:

The

ratio

of

cumulative

distributions to limited partners


divided by the amount of capital
contributed by the limited partners.
TVPI:

The

sum

of

cumulative

distributions to limited partners and


the net asset value of their investment,
divided by the capital contributed by
the limited partners.

performance because they manage


a portfolio that includes a mix of
public and private investments.
Consequently,
IRR
reported
as a percentage provides an easy
comparison to return percentages
on public investments, even though
IRR percentages are not completely
comparable.2 LPs will often look for
400 to 600 basis points over a public
benchmark to justify the illiquid and
long-term nature and risk profile
of VC investing. DPI provides a
clear metric of the actual multiple
of cash invested which has been
received by an investor, and TVPI
provides a metric that accounts for
potential returns that are the result
of increased valuations of portfolio
companies as they approach exit.
Given this difference, many LPs
rely on TVPI earlier in the life of a
fund and DPI towards the end. In
contrast to IRR, TVPI and DPI do
not account for the time it takes to
produce these gains.
Despite the shortfalls, the three
metrics have become the standard for
comparison. In our experience, we
have found that LPs rely on a
combination of all three metrics
to assess the performance of their
investments, with some favoring
one over the other, in part, due to
the preference of their board and
their specific type of investment.

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Venture Capital Update

fund a: returns spread evenly over 10 years

This example shows that funds with


lower IRRs can still provide higher

Cost: ($100m)
Returns: $110m
Gain:
$10m

11

10

20

/2

9/

09

20

9/

/2

12

08

20
9/

/2

12

07

20
9/

/2
12

12

06

20

12

/3

20
0/

/3

0/

05

04

20

/3

0/

12

03

20
0/

/3

12

02

20

/3

1/

12

01

20

1/
/3
12

IRR

0%
20

11

10

20

/2

9/

09

20

9/

/2

12

08

20
9/

/2

IRR = 14%
TVPI = 2.0x

All three metrics can result in a biased


assessment of fund performance due
to the way each is calculated. For
instance, the calculation of IRR is
greatly influenced by the timing of
returns in a fund, or more specifically,
short holding periods.3 The example
above shows two funds of identical
size and capital call timing. Fund A
provides a steady return of 2.0x to its
investors during the last four years
of the fund with an ending IRR of
14 percent. Fund B returns only
1.1x, but with an IRR of more than
2000 percent due to the large returns
early in the funds life, soon after the
investment was made.

ASSESSING FUND PERFORMANCE


May 2008

12

07

20
9/

/2

12

06

20

/3

0/

12

05

20
0/

/3

12

04

20

/3

0/

12

03

20
0/

/3

12

02

20

/3

1/

12

01

20
1/

/3
12

12

00

20

20

1/

1/

/3
12

Cost: ($100m)
Returns: $200m
Gain: $100m

400%

1/

0%

800%

1.0

/3

400%

12

1.0

1200%

2.0

00

800%

3.0

20

2.0

1600%

4.0

12

1200%

2000%

5.0

1/

3.0

DPI & TVPI

4.0

IRR

DPI & TVPI

1600%

2400%

6.0

2000%

5.0

/3

7.0

2400%

6.0

12

IRR

/3

7.0

TVPI

12

DPI

fund b: big return early in fund

IRR = 2191%
TVPI = 1.1x

multiples on returned capital


that is, more money back into the
investors pocket. This example also
shows that big returns during the
first few years of a funds life can
lead to misleadingly high TVPI and
DPI multiples early in the fund. In
this example, Fund B showed TVPI
and DPI figures above 5.0x in the
first year in the life of the fund, but
the fund ultimately returned only
1.1x at termination.

requiring large amounts of capital


very early in a companys life cycle,
and requiring longer investment
periods, may inherently generate
lower IRRs. Larger capital calls
would occur earlier and returns
would be realized later in the life
of this type of fund as compared
to other funds. Companies in life
sciences may fit this profile, while
quicker exits might come from Web
2.0 companies.

The built-in bias of the performance


metrics may have greater implications
for certain types of funds, particularly
funds that focus on certain stages or
sectors. For instance, funds with
investments concentrated in sectors

Likewise, later-stage investments


potentially would generate returns
after a shorter time period than earlystage funds, with a potentially higher
IRR due to the timing of the returns,
assuming equal performance.

VENTURE CAPITAL UPDATE

Venture Capital Update

OVERVIEW
OF
INDUSTRY
BENCHMARK SOURCES

Lets explore each one of these


differences in more detail.

The most commonly used industry


benchmarks are published by
Cambridge Associates and Thomson
Reuters
Venture
Economics.
Cambridge Associates is a consulting
firm that provides advisory services
to institutional investors and in doing
so, has access to financial information
for a large number of funds. Thomson
Reuters (formerly Thomson Financial)
publishes a range of financial news
and information, such as Private
Equity Week and the Venture Capital
Journal. A third benchmarking source,
Private Equity Intelligence (known as
Preqin), creates benchmarks using
its Performance Analyst database of
fund financials. Preqin also provides
access to separate databases of funds
in the market and limited partner
information.

1. The benchmarks use different


methodologies for data collection

These organizations are more


different than they are similar, not
only in their business structure, but in
how they gather, analyze and report
benchmarks. Specifically:
1. The benchmarks use different
methodologies for data
collection
2. The benchmarks use different
data samples
3. The benchmarks provide
different performance results

ASSESSING FUND PERFORMANCE


May 2008

Performance metrics vary widely


from one benchmarking source to
another. One factor is the different
methodologies for collecting data
from the funds. Cambridge Associates
collects financial information from
its clients investments as well as by
soliciting information from managers,
which it aggregates into its database for
calculating performance benchmarks.
Thomson Reuters Venture Economics
uses surveys sent to private equity
and venture funds relying on selfreporting. These surveys are not
audited, but the information collected
reveals cash flow information. Both
organizations collect this information
on a confidential basis.
By contrast, Preqin collects data on
fund performance based on public
data sources, typically reports
from pension funds and other
institutions that must provide their
financial performance reports as
mandated by the U.S. Freedom of
Information Act (FOIA) or similar
legislation in foreign countries. These
organizations report performance,
rather than cash flows, which form
the basis of calculations by Thomson
Reuters and Cambridge Associates.

Because the data are gathered from


public sources, Preqin publishes the
performance metrics for specific funds
and firms. That is, it does not keep
the fund or firm name confidential
for performance on individual funds.
Cambridge Associates and Thomson
Reuters aggregate fund performance
information and do not identify fund
or firm names. Preqin advertises
that its data have less selection bias
than samples collected via surveys or
client investments because Preqins
information would not omit better
funds or worse-performing funds or
be skewed upwards by institutional
clients investment picks. However,
some in the industry assume that
since Preqin gathers data from funds
subject to disclosure, these investors
cannot access the best performing
funds and therefore, Preqins results
will be skewed downward.
2. The benchmarks use different
data samples
One reason why the performance
benchmarks from each of the
providers are so different is because
they use different samples of funds
for their calculations. Simply put,
different samples of funds yield
different benchmarks. The graph
below compares the number of funds
per vintage year from 1995 to 2007 for
each of the benchmark providers.

VENTURE CAPITAL UPDATE

Venture Capital Update

venture. However, it is known that


these samples are small percentages of
funds in the U.S. market. The graph
below shows the sample size for
each of the benchmark providers as a
percentage of funds invested.

number of u.s. venture funds sampled by vintage year


Cambridge Associates
180

Number of funds

140

118

120
100
73

80
40
20
0

Preqin

162

160

60

Thomson Reuters

49
36
25
1995

43
35
25

62
35

82

125

The available sample sizes seem small


given the perceived variance in fund
performance, but this is beyond the
control of the organizations providing
the benchmarks. In one survey of
private equity firm CFOs, almost 40
percent of respondents stated that they
did not send financial information
to Thomson Reuters because there
was no reason to do so.5 In fact,
there is little incentive for funds to
complete and return surveys of their
performance, particularly if the fund
is one of the best or one of the worst
performing.

109

77

72
54

38

57
56
44

35
30

37
17

19

16

58

55

28

33

23

17

50
44

34
27
11

25

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Vintage Year

Sources: Cambridge Associates, Thomson Reuters, and Private Equity Intelligence. Cambridge Associates
and Thomson Reuters data are as of December 31, 2007; Preqin data are as of various dates but are the
most recent obtained. Cambridge Associates data were provided at no charge.

In statistics, the amount of variance


in the population must be known
or estimated in order to determine
the appropriate sample size. The
performance of venture funds is
known to have a large amount of
variability because the dispersion of
returns is large. And the greater the
variation, the larger the sample size
required for the samples metrics to be

ASSESSING FUND PERFORMANCE


May 2008

statistically significant. Because there


is not a precise estimate of variation
of funds performance, its difficult to
estimate an accurate sample size for

sample size as a percentage of active u.s. venture funds


Cambridge Associates
35%
Percentage of Active Funds

While Cambridge Associates typically


uses the largest sample size to calculate
benchmarks for almost all of the
vintage years during 1995 to 2007,
it is questionable whether even its
sample size of funds per vintage year
is large enough to provide efficient and
unbiased estimators of performance.4
In other words, does a summary
statistic of performance based on these
sample sizes reflect actual performance
of venture funds in the market?

30%

29

32
27

27

25%
20%
15%
10%

21
15

31
28
29

14

29
26
23

26

13

33

28

27

21
15

Preqin

33

22
16

Thomson Reuters

12

18

24
15

18
14

15

14

16
13

17

18
13

14
6

5%
0%
1995

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Vintage Year

Sources: Cambridge Associates, Thomson Reuters, and Private Equity Intelligence. Cambridge Associates
and Thomson Reuters data are as of December 31, 2007; Preqin data are as of various dates but are the
most recent obtained. The number of funds in each vintage year is the number of active funds based on
Thomson Reuters Fund Statistics Report. Cambridge Associates data were provided at no charge.

VENTURE CAPITAL UPDATE

Venture Capital Update

comparison of investment horizon benchmarks


Thomson Reuters

40%

Cambridge Associates

Pooled IRR (%)

35%
30%
25%
20%
15%
10%
5%
0%

10-Year Venture IRR


Performance

5-Year Venture IRR


Performance

3-Year Venture IRR


Performance

1-Year Venture IRR


Performance

Sources: Cambridge Associates and Thomson Reuters. Note that Preqin does not provide cumulative
benchmarks over specific time horizons. Pooled IRR is calculated based on cash flows of all funds regardless
of vintage year during the specified time horizons. All data are as of December 31, 2007. Cambridge
Associates data were provided at no charge.

While each benchmarking source


purports to report on the performance
of the industry, there is a large variation
in performance metrics among the
three providers. The bar graph above
compares pooled IRR performance
metrics between Cambridge Associates
and Thomson Reuters. Preqin does
not provide benchmark metrics over
these time horizons; rather the data
are provided by fund, firm or vintage
year. Note that Cambridge Associates
10-year pooled IRR figure is almost
double the same metric published
by Thomson Reuters. Given that the
pooled 10-year IRR metric is more
stable than, for instance, a short-term
one-year metric, the large difference in
the long-term benchmark is surprising.

ASSESSING FUND PERFORMANCE


May 2008

Large differences also remain in the


three-year pooled IRR performance
benchmarks.

comparison of irr ranges for vintage 2000


Lower Quartile

Minimum

Median

Maximum

Upper Quartile

40%
20%
0%

IRR (%)

3. The benchmarks provide different


performance results

Do the differences in aggregated


performance indicate that these sources
contain completely different collections
of funds? An examination of the
sampling distributions and the sample
means, or averages, would provide
a definitive answer to this question.
However, the data for individual funds
in Cambridge Associates and Thomson
Reuterss samples are not available
to conduct these statistical tests. As
a proxy, box and whisker plots help
show the quartile ranges of funds and
the best and worst performing funds.
The chart below show the maximum,
top quartile, median, lower quartile
and minimum fund performance for
vintage year 2000.6 The top quartile
and lower quartile provide the top and
bottom edges of the box; the median
is the line in the middle; the minimum
and maximum are dots connected by
extended lines.

-20%
-40%
-60%
-80%
Cambridge Associates

Thomson Reuters

Preqin

Sources: Cambridge Associates, Thomson Reuters, and Private Equity Intelligence. Cambridge Associates
and Thomson Reuters data are as of December 31, 2007; Preqin data are as of various dates but are the
most recent obtained. Cambridge Associates data were provided at no charge.

VENTURE CAPITAL UPDATE

Venture Capital Update

For vintage year 2000, the median


fund performance is similar across
the three benchmarking sources,
although the IRR is positive according
to Preqin and negative according to
Cambridge Associates and Thomson
Reuters.7
Many in the venture industry would
argue that a funds performance
must place it in the top quartile
in order to achieve attractive, riskadjusted returns over time. The box
and whisker plots above show how
high the performance can be for
some of the funds in the top quartile
(represented by the extended lines
on top of the boxes). The graph
below shows the variation in the
IRR performance of the top quartile

ASSESSING FUND PERFORMANCE


May 2008

fund in samples from Cambridge


Associates, Thomson Reuters and
Preqin. The difference in IRR metrics
of the sources top quartile funds was
narrow (2 percent) in 2001 and wide
(12 percent) in 2005. The graph also
shows that no one benchmark has an
upper quartile fund performance that
is consistently higher or lower than
the other benchmarks; moreover, the
benchmarks do not trend together.

OVERCOMING BENCHMARK
LIMITATIONS
While benchmarks can provide a
quick comparison of one investment
to the performance of another in
the same asset class, many LPs
invest in venture capital and private
equity to add diversification to their
portfolio and to provide returns
that are not correlated to public

upper quartile comparison


Cambridge Associates

30%

Thomson Reuters

Preqin
24

25%

Pooled IRR (%)

This simple analysis confirms the


wide range of performance across
venture capital fundsnot only
within samples, but also across
different benchmarking sources. This
disparity in performance between the
best and worst funds is exceptionally
largeparticularly for Cambridge
Associates funds in 2000but the
performance of these funds may be
outliers compared to other funds
in each sample. Nonetheless, the
benchmarking sources show ranges
of more than 10 percentage points
between the upper quartile and lower
quartile IRRs and almost 20 percentage
points difference in Preqins sample.

21

20%

16

15%
10%

5%
0%
-5%

11

10

10

13
11

14

12
12

12

11
7

4
-3

2000

2001

2002

2003

2004

2005

2006

Sources: Cambridge Associates, Thomson Reuters, and Private Equity Intelligence. Cambridge Associates
and Thomson Reuters data are as of December 31, 2007; Preqin data are as of various dates but are
the most recent obtained. Preqin does not provide IRR benchmarks for vintage 2007 funds. Cambridge
Associates data were provided at no charge. Note: IRR performance during the first three years of a fund is
typically considered not meaningful.

In the process of benchmarking performance, LPs must decide the objective of an


investment. Which is it?
Provide a return commensurate with the added risk and illiquidity of the investment
Provide more dollars back to the fund
Outperform public investments by a certain margin
Determining the primary goal of the investment will help to guide LPs to find the appropriate
benchmarking tool.

VENTURE CAPITAL UPDATE

Venture Capital Update

markets. These LPs often compare


the IRR of the venture portion of
their portfolio to the performance
of public investments, with an
expectation that the venture portion
will return a certain level higher
than public market investments. The
logic of this assessment is based on
risk and reward. Venture investing
presents greater risks to an investor
than investing in public markets, in
part, because it is a long-term and
relatively illiquid investment; likewise,
investors expect greater returns from
their venture investments.
The business of benchmarking
venture capital funds has many
complications simply because it is

hard to collect accurate financial


data on private investments. Its
also difficult to report consistently
on performance due to the metrics,
the sample sizes and the collection
methodologies.
With clear shortcomings and
inconsistencies
in
industry
benchmarks, how can investors
assess the performance of their funds?
Given the long-term nature of the
investment and the lack of access to
information on returns in the private
market, accurately benchmarking
venture capital remains elusive.
While individual funds may have little
incentive to contribute their financial

information
to
benchmarking
organizations, SVB Capital believes
that the venture industry as a whole
should have an incentive to create
more credible and statistically reliable
performance metrics. With more
accurate benchmarks, the venture
industry could assess more fully
how funds are performing, especially
as compared to other asset classes,
and communicate these results with
current and potential investors.
Today its commonplace to study
automotive industry benchmarks
that yield meaningful insights as a
basis for decisions. Tomorrow its
possible we will be able to say the
same about venture capital.

Recognizing the limitations of venture capital benchmarking for assessing performance, SVB Capital recommends supplementing
benchmark analysis with other information. Consider the following:
Gain a better understanding of portfolio companies and the return potential of the active portfolio. Annual meetings can typically be
the place to obtain this information. It is widely known that one home run in a venture capital portfolio can move the fund into top-tier
territory. Returns to the top-tier venture capital funds are typically driven by a few deals.
Become part of the conversation. Those closest to the business of the fund have good information and instincts about current and
future performance. Discuss the performance of the fund with the fund managers and learn the details of the companies in the portfolios
that driveor dragperformance.
Look at the track record of individual venture investors, many of whom have made previous investments at other funds. The performance
of past investmentsincluding which sectors provided the returnsmight help to inform expected performance.

ASSESSING FUND PERFORMANCE


May 2008

VENTURE CAPITAL UPDATE

Venture Capital Update

TELL US WHAT YOU THINK


Send your comments and suggestions for topics to Bronwyn Bailey at bbailey@svb.com.

Net Asset Value is the market value of the portfolio plus any cash held by the fund.

See Austin M. Long and Craig J. Nickels, A Method for Comparing Private Market Internal Rates of Return to Public Market Index Returns. Manuscript. The
University of Texas System, August 28, 1995.

The IRR calculation assumes that distributed capital is reinvested at the same IRR over the life of the fund, when in fact, investors may not find similar investment
opportunities for each distribution. See Oliver Gottschalg and Ludovic Phalippou, The Truth about Private Equity Performance, Harvard Business Review,
December 2007 for this analysis. For a detailed discussion on the benefits and drawbacks of using IRR as a performance metric, see Paul Gompers and Josh Lerner,
Assessing the Performance of Private Equity Funds. Manuscript. Harvard Business School, January 2003.

The game of darts can be used as an analogy for the quality of a sample statistic. The darts of an efficient and unbiased player would land clustered closely together
on the bulls eye of the target. The darts of a less efficient player would land scattered around the dartboard, and the darts of a biased player would be tightly
clustered outside the bulls eye.

Results from an informal survey conducted by Thomson Reuters (formerly Thomson Financial) presented at the Private Equity CFO Conference, July 2007.
Respondents were attendees at the conference.

Vintage year 2000 was chosen due to the large number of funds in each sample, which would provide a more conservative estimate of variation in fund performance.
This analysis is limited to IRR performance because Cambridge Associates does not publish quartile ranges for DPI and TVPI calculations.

This finding for vintage year 2000 does not support the notion that public institutions, Preqins data source, have problems accessing better performing funds.

ASSESSING FUND PERFORMANCE


May 2008

VENTURE CAPITAL UPDATE

Venture Capital Update

fourth quarter 2007 u.s. private equity snapshot


u.s. venture investing activity

most active venture investors

Deals
Amount Invested ($M)

Polaris Venture Partners

$10,000

700

$8,000
$6,000
$4,000
$2,000

2Q

3Q

4Q

18

New Enterprise Associates

8,500

16
15

Draper Fisher Jurvetson

4,214

Atlas Venture

2,100

14

500

Mohr Davidow Ventures

1,400

13

Sequoia Capital

2,153

13

400

Accel Partners

4,000

12

300

Austin Ventures

3,000

11

Bessemer Venture Partners

2,000

11

Duff Ackerman & Goodrich

1,125

11

Ignition Partners

1,475

11

InterWest Partners

2,002

11

100
1Q
2007

$ 3,049

600

200

3Q
4Q
2006

Num of Deals
$ (MILLIONS)

$ (MILLIONS)

$0

Assets
Under Mgmt

Firm Name

Kleiner Perkins Caufield & Byers

2,760

11

Highland Capital Partners

2,964

10

Q4 2007

Source: Dow Jones VentureSource

Source: Dow Jones VentureSource

venture investment by region, all


industries
US Region
Bay Area

Num of
Num of Investing
Deals
Firms

Average
Per Deal

fundraising by u.s.-based venture and lbo/


mezzanine firms
Venture Capital
Buyout and Mezzanine

$ (MILLIONS)

Sum Inv.

187

267

$ 14.8

$ 2,499.5

Boston Area

77

127

13.4

967.2

New York Metro

48

81

9.2

447.6

San Diego Metro

24

66

19.0

426.7

Washington State

32

59

13.2

424.1

$50

Research Triangle

18

40

20.1

361.7

$40

Texas

35

31

10.6

356.4

Midwest

38

62

8.0

290.2

$30
$20

Potomac

32

56

8.8

278.8

Los Angeles Metro

30

36

8.2

230.9

Philadelphia

15

11.5

154.4

Southeast

18

22

9.1

151.0

Colorado

15

33

5.5

82.3

10.1

43.3

Oregon

Source: Dow Jones VentureOne

ASSESSING FUND PERFORMANCE


May 2008

$ (BILLIONS)

$80
$70
$60

68

60

31

$10
$0

68

61

56

5
3Q

2006

6
4Q

6
1Q
2007

9
2Q

3Q

12
4Q

Source: Thomson Financial Venture Economics/National Venture Capital


Association

VENTURE CAPITAL UPDATE

10

Venture Capital Update

irr performance (%) by vintage year (u.s.)


Num
Vintage
of
Year Funds

Cap
Wtd
Avg

Pooled
Avg

Upper
Quartile Median

Lower
Quartile

1996

35

59.6

83.6

113.9

31.0

1.5

1997

62

46.3

49.6

59.7

20.2

(0.8)

1998

77

24.3

19.2

11.9

2.0

(4.0)

1999

109

(7.1)

(5.8)

0.9

(6.9)

(15.0)

2000

125

0.8

2.1

3.0

(2.5)

(7.9)

cumulative irr performance (%) by stage


(u.s.)
Fund Type

591

9.2

19.3

16.0

3.3

Seed Stage VC

66

5.5

9.4

13.3

4.4

(1.2)

Early Stage VC

525

9.4

20.2

16.3

3.3

(5.2)

Balanced VC

452

10.0

14.1

15.7

5.6

(0.3)

Later Stage VC

199

6.4

13.7

17.0

7.4

(0.6)

1,242

8.9

15.8

16.0

4.9

(2.1)

Small Buyouts

178

8.7

15.4

17.3

7.4

(0.3)

Med Buyouts

112

12.3

17.6

22.2

9.3

(0.1)

Large Buyouts

92

11.3

12.9

19.5

7.3

0.1

Mega Buyouts

124

8.1

12.4

18.0

8.7

0.4

506

8.9

13.3

18.4

8.0

(0.1)

72

6.9

8.7

12.6

7.5

1.5

668

9.3

12.7

18.0

8.0

0.1

1,915

9.2

14.1

16.7

6.3

(1.4)

All Venture

56

4.3

5.8

11.3

2.6

(3.5)

2002

19

1.0

2.7

3.6

(0.6)

(2.4)

2003

16

8.0

8.0

15.7

0.9

(1.6)

2004

23

4.0

7.3

11.8

(1.0)

(7.8)

All Buyouts

2005

17

1.8

5.2

21.0

3.2

(2.3)

Mezzanine

2006

25

(2.7)

(0.5)

4.7

(9.6)

(20.2)

2007

11

(31.0)

(0.1)

(21.7)

(26.1)

(60.2)

u.s. ipo vs m&a transactions for


venture-backed companies

Cap
Wtd Pooled
Upper
Lower
Avg
Avg Quartile Median Quartile

Early/Seed VC

2001

Source: Thomson Financial Venture Economics/National Venture Capital


Association; data as of December 31, 2007

Num
of
Funds

Buyouts and Other


PE
All Priv Equity

(4.9)

Source: Thomson Financial Venture Economics/National Venture Capital


Association, data as of December 31, 2007

us. venture liquidity events by industry

Number of IPOs
Number of M&As

Industry

2005

2006

2007

IPO M&A

IPO M&A

IPO M&A

160
140
120

9
13

100

24

11

18

80
60

25

120
83

40

105

110

94

100

20
0

3Q

2006

4Q

1Q
2007

Source: Dow Jones VentureSource

ASSESSING FUND PERFORMANCE


May 2008

2Q

3Q

4Q

Biopharmaceuticals

14

40

20

Healthcare Services
Medical Devices
Medical IS
Comm. And Networking

29

17

25

11

14

23

18

18

16

40

49

10

34

Elect. & Computer Hdw.

12

14

Information Services

43

48

65

Semiconductors

17

18

18

Software

148

157

144

Other

10

70

60

10

68

TOTAL

43

4413

556

420

75

398

Source: Dow Jones VentureOne

VENTURE CAPITAL UPDATE

11

Venture Capital Update

price change

u.s. venture-backed m&a activity


Number Deals
Amount Paid ($B)

$18
$16

The direction of price changes for 103 San Francisco Bay Area companies
receiving financing, compared to their previous rounds.

$ (BILLIONS)

140
110

105

$14

94

83

$12

100

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

80
16

$8
$6

10
8

12

60
40

9
20

$2
0

120
100

$10

$4

Down
Flat
Up

122

3Q

4Q
2006

1Q
2007

2Q

3Q

4Q

67
24
9
3Q
2006

22

11

4Q

81

79

67

9 12
1Q
2007

14

11 8
2Q

79

7
3Q

69
22

9
4Q

Source: Fenwick & West L.L.P.

Source: Dow Jones VentureOne

venture capital barometertm


Average per share % price change from previous round of Silicon Valley
companies receiving VC investment in the applicable quarter. Complete
report available at http://www.fenwick.com/vctrends.htm
Net Results of Rounds

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

69

75

79

74

49

3Q

2006

55

4Q

1Q
2007

2Q

3Q

4Q

Source: Fenwick & West L.L.P.

ASSESSING FUND PERFORMANCE


May 2008

VENTURE CAPITAL UPDATE

12

Venture Capital Update

*This update is for informational purposes only and is not a solicitation or recommendation that any particular investor should invest in any particular industry,
security, or fund.
This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on
information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not represent
that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an
investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material
should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction.
2008 SVB Financial Group. All rights reserved. Member Federal Reserve. SVB, SVB> and SVB>Find a way are all trademarks of SVB Financial Group. SVB
Capital is a non-bank member of SVB Financial Group. Products and services offered by SVB Capital are not insured by the FDIC or any other Federal Government
Agency and are not guaranteed by Silicon Valley Bank or its affiliates. Rev. 06-02-08.

ASSESSING FUND PERFORMANCE


May 2008

VENTURE CAPITAL UPDATE

13