UK venture capital returns on par with US rivals

Mark Johnson's picture

The UK's vibrant venture capital sector produces similar returns to that of the US, and in some cases outperforms it.

That's according to the latest market analysis from the British Business Bank, published today. 

The new report, Analysis of UK VC Financial Returns, draws together data from existing data sources including PitchBook and Preqin, and from the Bank’s own programmes, to provide as comprehensive a picture as possible of the asset class and its performance.

UK outperforms US

According to the research, for funds with a 2002-2006 vintage, UK VC funds outperformed US VC funds, with a pooled Distribution to Paid-In (DPI) of 1.95 compared to 1.04. 

From 2007 onwards, UK VC funds’ performance is only slightly lower than the US, with a UK pooled Total Value Paid-in (TVPI) of 1.54 compared to 1.88 for the US, a 0.3-point difference

The DPI of UK VC Funds with a 2002-2006 vintage (1.95) is even comparable with that of US funds when they were at their highest, in the 1980s (2.22) and 1990s (2.56).

Moreover, the BBB found that UK VC funds share a similar distribution of returns compared to US funds, apart from a small number of top US funds that outperform significantly.

The Bank said the new report is a first step towards meeting one of the main recommendations of the British Business Bank/Oliver Wyman Future of DC Pensions report published last month: that the Bank should take the lead to improve the quality of data demonstrating the level of UK VC returns.

The recommendation arose from the finding that publicly available data on VC returns comes from a small number of data sources and can be inconsistent.

“This report provides the most comprehensive and robust approach to date for assessing the comparative performance of UK VC funds compared to US VC funds since 2002, and makes a specific case for UK VC within global VC allocations” Alice Hu Wagner, MD for Strategy, Economics and Business Development at the British Business Bank, said.

“We will continue to make available aggregate level data on both our own funds and on UK VC more generally to demonstrate that the UK VC market can be an attractive asset class.”

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