Venture capital is perhaps the most glamorous asset class. At the cutting edge of the economy, driving innovation and growth, venture capitalists offer investors the prospect of backing the next Google. But the industry is notoriously secretive, making it difficult for investors to identify the best funds.
That looks set to change. Oliver Gottschalg, a professor at HEC business school in Paris, has produced what is thought to be the first ranking of global VC firms by performance, based on data from research firm Preqin.
While US firms dominate the top 10, high-profile participants such as Sequoia Capital – an early backer of Google – are absent, and the first two spots are occupied by South American and Australian firms.
The absence of big name firms is largely down to their secrecy about returns, according to Gottschalg. He said: “Our approach was very conservative and we only considered firms on which complete performance data on all relevant funds was available. Some of these firms are said to have taken steps to restrict investment by state pension funds to avoid revealing their returns.”
The list is led by Southern Cross Group, a Latin America-focused investor with offices across the continent. Sydney-based Quadrant Private Equity firm came second, with Brentwood Venture Capital – a former division of Los Angeles-based Brentwood Associates – in third place.
Gottschalg said: “One trend is the very strong performance of emerging market-focused funds, which are not traditional VC markets.”
Just one European firm made the top 10 – Luxembourg-based Mangrove Capital Partners, the first investor in Skype.
The poor aggregate performance of European venture capital firms is highlighted in data by the European Private Equity and Venture Capital Association, which states Europe’s VC firms have returned only 0.7% annually on average over five years, and lost 1.9% annually over 10 years.
By contrast, US returns were 4.9% over five years and 8.4% over 10 years, according to the National Venture Capital Association.
Gottschalg said: “European VC has always been a difficult market. There is a less established network of advisers, and Europe did not have very open or liquid exit markets in the wake of the dot.com bust.”
David Holbrook, a partner with UK venture capital firm MTI, said: “Fewer European VC firms know what they are doing than US firms. That is because the US has been through several cycles, giving rise to serial investors and entrepreneurs that have raised the standards.”
2. Quadrant Private Equity
Founded: 1996
Headquarters: Sydney
Focus: Australasia
Committed capital: $1bn
Key investments: Tower Software, children’s clothing company Pumpkin Patch
Sydney-based Quadrant invests only in Australia and New Zealand. That strategy has paid off over the past two decades, yielding an average 37% internal rate of return across the firm’s five funds, according to Chris Hadley, Quadrant’s managing director. He said: “Australia is a very fertile market, with a huge depth of private companies. We aim to take them to another level.”
The firm now invests about a third of its money in venture capital deals, and the remainder in mid-market companies in a range of industries. Key deals include Sentia Media, Vitus Health and Tower Software which sold to Hewlett Packard for $105m in 2008.
Hadley said: “This is a good time to invest if you have cash because alternative sources of finance are constrained, with banks reluctant to lend. It should be a good vintage.”
Writen by Global Administrator, 14/03/2016 News