It Was a Very Good Year (Especially If You’re a Late-Stage VC)

Late stage venture capital firms had a pretty good 2010, according the to Thomson Reuters U.S. Private Equity Performance Index. VC shops investing in late-stage companies enjoyed average returns of more than 35% over a 12-month span, according to data.

VCs like Elevation Partners, Goldman Sachs and Digital Sky Technologies—to say nothing of secondary market venture capital stake buyers, far greater in number—spent the last year plowing cash into the meteoric ascent of Facebook and were rewarded (as likely will be their LPs at the point of exit) with the best one-year returns out of all private investors. Late-stage investors that placed bets on Facebook have continually been rewarded (even as some head for the exits) as the company’s valuation continues to grow.

It wasn’t only Facebook shareholders that saw portfolio values take off thanks to the development of secondary markets, et al. Stockholders in Zynga, Twitter and other late-stage consumer Internet investments also enjoyed a solid 2010 and aggressive expectations continue for this year. News of late-stage VC success comes as several of the biggest names in venture capital raised funds, some exceeding $1 billion, to prepare for more investments this year.

Still, one-year VC investment numbers were off the pace of buyout and PE shops, and the Nasdaq and S&P 500 indices. Seed-stage, late-stage and balanced VC portfolios increased over a 12-months span by an average of 14%, behind the 18% and 15.1% gains of Nasdaq and S&P 500 indices, respectively. And early figures might give pause to the big and growing field of seed-stage and incubator investors.

Seed and early VC investment funds had a weak showing for one-, three-, five and 10-year returns; 2010’s one-year figure was a meager 6.7% return. By comparison, the one-, three- and five-year returns for Nasdaq and S&P 500 indices each outpaced that of seed-stage funding.

Private equity mostly outpaced VC, according to the data from Thomson Reuters, also the publisher of peHUB.com. Aggregate figures encompassing small buyouts (up to $250 million), medium ($250 million-$500 million), large ($500 million-$1 billion) and mega buyouts ($1 billion-plus) indicated a gain against the same benchmarks shared by VCs. That is except for the 20-year return horizon, during which VCs backed tech titans, like Microsoft. Across one-year benchmarks, small and medium-size grew 6.5 percent and 23.8 percent, respectively. Large and mega-buyout funds grew by 16.4% and 18.7% respectively; for private equity as an asset class, all segments grew at an average rate of 18.7 percent, data show.