Growth5 Blog

Thursday, February 4, 2010

Dot-Com Crash Catches Up With VCs

The NYT posted this article yesterday about the dot-com crash catching up with venture capitalists' ten-year returns this year. What? The dot-com crash was forever ago.

VC funds are typically set up for ten years or more - a firm's 10-year return is important. For the last 9+ years the pre-crash years were included in 10-year returns for VCs, helping to prop up the crash year and the difficult years that followed. No more. Now it's just bad years - comparatively.

And it's a pretty big swing. According to the Cambridge Associates US Venture Capital Index, VC returns for the 10 years ending September 30, 2008 were 40.2 percent. For the ten years ending September 30, 2009 the number drops to 8.4 percent. Yikes! I wonder how many VC firms haven't updated their marketing materials in the last year.

Who knew how much the 1999 returns were carrying that 10-year return number. It makes sense, the NASDAQ composite peaked at 5,132.52 on March 10, 2000 and it's been all downhill from there. The NASDAQ composite closed today at 2,190.91.

However, we need to give the VC 10-year return (10/1/99 - 9/30/09) of 8.4 percent some credit. Over that same ten years, venture capital still outperformed the public markets:

NASDAQ: -2.5 percent
S&P 500: -0.2 percent
Dow Jones: +1.6 percent

If you feel like you need to brush up on the dot-com crash, check out Sean Carton's book: The Dot.Bomb Survival Guide: Surviving (and Thriving) in the Dot.Com Implosion. This is the kindle edition.

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