eFront: Venture capital performance at new high despite pandemic

eFront: Venture capital performance at new high despite pandemic

January 28, 2021

Equity
Investering.jpg

eFront, the leading financial software and solutions provider dedicated to Alternative Investments, has published its latest Quarterly Private Equity Performance report, showing that venture capital funds globally delivered exceptional performance in 2020, despite the effects of the Covid-19 pandemic, with the second and third quarters marking the highest returns on record.

Key findings

  • 2020 was an exceptional year for venture capital performance, with funds globally reaching a record high of 1.64x in Q2.
  • At the same time, selection risk – as measured by the difference in the performance of top and bottom 5% of funds – has also reached a record high, with a TVPI spread of nearly 2x, potentially signaling more challenging market conditions.
  • Distributions remain robust, meanwhile, with time-to-liquidity fairly stable at 3.5 years following strong distributions – good news for fund investors and managers alike.
  • Active VC funds have seen their TVPI stabilize. As a consequence, majority of vintage years remained around the historical average, while the strong ones continue to outperform it.
  • For active US funds, Q2 led to a rebound and Q3 a stabilization, mimicking the price of listed stocks of American technological companies.
  • Western European funds, meanwhile, recorded a decline in performance in Q3 2020.

Analysis
Up to the end of Q3, 2020 has been an exceptional year for venture capital performance, with funds globally recording an increase in aggregated multiple of invested capital (TVPI), rising from 1.58x in Q3 2019 to 1.63x in Q3 2020.

Thus far, it is difficult to find any impact of the Covid-19 pandemic on the performance of active VC funds. Their aggregated multiple of invested capital reached an all-time high of 1.64x in Q2 2020, when the pandemic was unfolding. The performance has now reached a plateau above the 1.6x threshold, but this is a far cry from a correction.

The first three quarters of 2020 show an even higher positive deviation from the average TVPI than 2019, which was already an exceptional year. Therefore, in terms of performance, active VC funds have so far gone from record to record. This evolution echoes the progression of the valuation of listed tech firms.

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