Venture Capital Outpaces Buyouts in Investment Returns

Toronto, Canada, January 27, 2015 (Newswire.com) - In the years since the dot-com crash of 2000, venture capital firms have generally lagged behind the financiers that take companies private in leveraged buyouts.

But that trend has recently reversed, with returns from venture capital outpacing those from buyout firms, according to data released recently by the research firm Preqin.

Aaron Taylor , PR Manager

Helped by landmark deals like the initial public offering of Twitter, the overall venture capital industry recorded a 25.9 percent internal rate of return in the 12 months through last June, the most recent data available, according to Preqin. Buyout funds turned in a 22.4 percent return in that period.

It was the second period in a row that venture capital outpaced buyouts, though the divergence this time was larger. Venture capital funds returned 19.7 percent in 2013, ever so slightly more than the 19.2 percent return from buyouts, according to Preqin.

But that trend has recently reversed, with returns from venture capital outpacing those from buyout firms, according to data released on Wednesday by the research firm Preqin.

Helped by landmark deals like the initial public offering of Twitter, the overall venture capital industry recorded a 25.9 percent internal rate of return in the 12 months through last June, the most recent data available, according to Preqin. Buyout funds turned in a 22.4 percent return in that period.

What is more, the 25.9 percent return is the venture capital industry’s best showing since the dot-com crash. In 2000, before the crash had ruined the industry’s results, venture capital funds had a 38.1 percent return.

In addition to big I.P.O.s, major acquisitions allowed venture capitalists to reap profits from their investments. These included Google’s $3.2 billion purchase of Nest Labs, a maker of Internet-conencted home devices, which was backed by firms including Kleiner Perkins Caufield & Byers and Google’s own venture capital arm.

Another major acquisition target, WhatsApp, which Facebook bought for a price that topped $20 billion, was backed by Sequoia Capital. (That deal closed in October, after the period covered by the Preqin data.)