Venture capital returns take a hit in 2nd quarter

Poor stock performance of Facebook Inc. and other venture capital-backed companies battered venture capital returns in the second quarter, according to the National Venture Capital Association's performance benchmark, the Cambridge Associates LLC U.S. Venture Capital index.

Venture capital funds returned a pooled internal rate of return of 0.6% for the quarter ended June 30 and a 6% IRR for the year ended June 30. This was down from 4.7% and 12.8%, respectively, for the quarter and year ended March 31, and 7% and 26.3%, respectively, for the quarter and year ended June 30, 2011.

Venture capital returns were battered by a large number of venture capital-backed initial public offerings whose market values fell after their backers were allowed to sell their shares, explained Emily Mendell, spokeswoman for the NVCA in an e-mail.

For example, venture capital-backed Facebook's stock price was selling for less than $20 — down from its IPO price of $38 — by the time some of the Internet company's venture capital backers were allowed to sell their shares. The stock is now trading around $22.

The down public markets also took a toll on venture capital performance of later-stage companies, said Mark Heesen, president of NVCA, in a news release.

The U.S. Venture Capital, Late and Expansion Stage index returned -1.2% for the quarter and 6.1% for the year ended June 30. Early-stage companies earned 1.1% for the quarter and 6.2% for the year.

The return for all venture capital-backed companies for the five years ended June 30 was an annualized 4.9%, down from 5.9% for the five years ended March 31 and down from 7.4% for the five years ended June 30, 2011.

The only time period that showed any improvement from the prior quarter and prior year-earlier period was the 10 years: up an annualized 5.3% as of June 30 from 4.4% for the 10 years ended March 31, 2011, and 1.3% for the 10 years ended June 30, 2011.