Analysis of UK VC
Financial Returns
October 2019
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BRITISH BUSINESS BANK
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ANALYSIS OF UK VC FINANCIAL RETURNS
CONTENTS
For these markets to work efficiently, information needs
to be made available that is both transparent and accessible.
That’s why the British Business Bank undertakes an
extensive programme of research and analysis throughout
the year, looking at both finance markets overall and,
when required, specific asset classes.
A lack of evidence demonstrating a strong track record
of an asset class can restrict institutional investors from
investing, reducing supply. Information on the historic
performance of the UK’s Venture Capital (VC) industry,
in particular, has not been fully transparent, contributing
to a lack of such finance being available to high growth
potential businesses.
In our recent Future of Defined Contributions Pensions
report, we committed to take specific action to support
greater transparency for LP investors. This report draws
together data from existing data sources including
PitchBook and Preqin, and from our own programmes,
to provide as comprehensive a picture as possible of the
asset class and its performance.
KEY FINDINGS
UK VC should be an attractive option for both LP investors
already investing in US VC, and LPs not currently invested in
VC and considering both the US and UK. Our analysis shows:
• that UK VC funds with a 2002-2006 vintage
outperformed US VC funds of the same vintage in
terms of their DPI and TVPI money multiples
• that, from 2007 onwards, the performance of UK VC
funds is comparable to the US, with UK performance
only slightly lower than US funds of the same vintage
• 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.
DRAWING FROM OUR OWN EXPERIENCE
The British Business Bank is the largest UK based LP
investing in UK VC, having committed, since 2006, £1.5bn
of investment into 67 funds through the Enterprise Capital
Fund (ECF) programme and the more recent, British Patient
Capital programme, established last year.
British Patient Capital (BPC) invests on a commercial basis
into VC funds targeted at UK scale-up companies. While it’s
too early in the life of BPC to draw definitive conclusions,
the outlook for future performance is promising, with early
DPI multiples being identical to the wider market for funds
of the same vintage. The pooled TVPI multiple for private
sector LP investors in VC funds under our ECF programme
is higher than the wider UK market, partly due to the
‘geared’ returns structure we offer.
The overall performance of the funds the British Business
Bank has invested in provides further specific evidence of
the positive returns that can be generated by UK VC funds.
This report is an important first step in improving VC
financial returns data to help build investor confidence
in the asset class.
We will continue to work with the wider VC industry to
improve data coverage and accuracy still further. In doing
so, we aim to help more high-growth innovative businesses
in the UK get the finance they need to become the global
success stories of tomorrow.
FOREWORD
KEITH MORGAN,
CEO OF BRITISH BUSINESS BANK
The British Business Bank is the UK government’s business development bank. Established in November
2014, its mission is to make finance markets for smaller businesses work more effectively, enabling those
businesses to prosper, grow and build UK economic activity.
3
FOREWORD
4
EXECUTIVE SUMMARY
8
INTRODUCTION
10 SECTION 1:

VC FUND FINANCIAL RETURN METRICS
13 SECTION 2:

SOURCES OF VC FUND FINANCIAL RETURNS INFORMATION
16 SECTION 3:

VC FINANCIAL RETURNS ACROSS DIFFERENT DATA SOURCES
22 SECTION 4:

LONG RUN VC FINANCIAL RETURNS
25 SECTION 5:

VC FINANCIAL RETURNS ACROSS GEOGRAPHY
32 SECTION 6:

BENCHMARKING BBB AND BPC VC FUND PERFORMANCE

TO THE WIDER MARKET
34 SECTION 7:

CONCLUSIONS
36 APPENDIX:

METHODOLOGY
38 ACKNOWLEDGMENTS AND ENDNOTES
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ANALYSIS OF UK VC FINANCIAL RETURNS
2. MOST VC FUNDS DO NOT PUBLICLY DISCLOSE THEIR
PERFORMANCE DATA
The variability in reported UK and European VC financial
returns is partly due to data providers capturing the financial
performance data from a relatively low proportion of the
total number of VC funds in the market. British Business
Bank analysis of Preqin shows this data source captures
the TVPI multiples for just 13% of Rest of Europe VC funds
with a 2002-2017 vintage year. This means coverage is
not representative of the wider population of funds and
heavily dependent on the sample composition of funds
included. Preqin captures TVPI multiples for 22% of UK
VC funds, which is higher than the Rest of Europe coverage.
US Freedom of Information (FOI) legislation requires US
public pension funds to disclose the performance of their
investments into VC funds. This means data providers tend
to have more representative coverage of US VC funds,
although coverage has declined over recent years.
Preqin captures TVPI multiples for 21% of US funds
with a 2002-2017 vintage.
In order to increase fund coverage, the British Business Bank
has combined fund level data from several commercial data
sources including PitchBook and Preqin with performance
data on the VC funds the Bank has invested in. This approach
will help to reduce the uncertainty around UK fund
performance by increasing the relative coverage of
existing datasets.
KEY FINDINGS
1. ESTIMATES OF THE FINANCIAL PERFORMANCE OF
UK AND EUROPEAN VC FUNDS VARY SIGNIFICANTLY
BETWEEN DATA SOURCES
There are several data sources providing information on
the financial returns generated by UK VC funds, including
commercial data providers such as PitchBook and Preqin
and organisations representing the VC industry such as
the British Venture Capital Association (BVCA). However,
these sources are not fully consistent and there are large
variations in reported returns figures for identical vintage
years. For instance, the reported pooled DPI multiple for
UK based VC funds in the 2002-2013 vintage year cohort
varies from 0.87 to 1.54, and the reported pooled TVPI
multiple varies from 1.50 to 2.06. The wide variation in
reported returns figures creates uncertainty on the
actual level of performance.
In contrast, reported US VC financial return multiples
are more robust with different data providers showing
substantially less variation in the performance of VC funds
with the same vintage years. For instance, both PitchBook
and Preqin show pooled DPI multiples of around 1.00 for
2002-2013 vintage funds and pooled TVPI multiples in the
range of 1.60 to 1.73 for VC funds in the same vintage year
cohort. This is also supported by published Cambridge
Associates data which shows yearly trends in reported
DPI and TVPI multiples for US based VC funds are within
a similar range and follow consistent trends over time.
EXECUTIVE
SUMMARY
Venture Capitalists provide funding to early-stage
companies with the potential for high growth.
Venture Capitalists usually invest through a Limited
Partnership fund structure, raising funding from
Limited Partners (LPs) such as pension funds and
insurance companies who are themselves looking
for a return on their capital.
For institutional investors to invest in Venture Capital (VC)
they require evidence that the asset class can generate
sufficient financial returns to offset the higher levels of
risk and illiquidity in VC compared to public markets.
There is currently no existing data source that has complete
coverage of all UK VC funds, with data sources having
relatively low coverage of VC funds and the financial returns
information not being fully verified. The British Business
Bank has tried to overcome these issues by combining data
from several commercial data sources such as PitchBook
and Preqin, alongside data from funds the Bank has invested
in, to provide a more comprehensive picture of VC
financial returns in the UK.
This report is compiled on a ‘best endeavours’ basis using
the most reliable data available. We welcome comments
and suggestions for ways in which UK VC financial returns
data can be improved.
The report focuses on financial returns using money
multiple measures only, as these can be calculated
consistently across different data sources:
• Distribution to Paid-In capital (DPI): Realised fund
returns as a percentage of the capital contributed.
This directly measures the cash received from
portfolio company exits.
• Total Value to Paid-In capital (TVPI): Realised and
unrealised fund returns as a percentage of the capital
contributed. This includes the realised returns and
the ‘book value’ of unrealised investments and is
useful for assessing performance during the early
part of a fund’s life.
The report examines the financial performance of VC in
isolation and does not try to compare VC performance
against other asset classes or against wider Private
Equity (PE).
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BRITISH BUSINESS BANK
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ANALYSIS OF UK VC FINANCIAL RETURNS
BRITISH BUSINESS BANK RESPONSE
The British Business Bank and BPC will seek to make
available more aggregate level data on the financial
performance of funds it has invested in, in order to build
up our own track record, but also demonstrate that the
UK VC market could be an attractive asset class for LP
investors.
The Bank has already committed to take action to support
greater transparency for LP investors. Our recent ‘Future
of Defined contributions pensions’ report3 stated ‘The
British Business Bank will continue to take the lead in
improving the quality and availability of UK industry-level
data on historic returns, increasing the broader transparency
of the asset class’. This report is a first step towards
demonstrating our commitment to improving VC
financial returns data by using existing available data.
The Bank recognises the importance of accurate data to
ensure current and future LPs can make an informed
decision for investing in the VC asset class and looks forward
to working with the wider VC industry to improve fund
coverage and accuracy.
4. PERFORMANCE OF FUNDS THE BRITISH BUSINESS
BANK HAS INVESTED IN PROVIDES ADDITIONAL
EVIDENCE OF THE POSITIVE RETURNS GENERATED BY
UK VC FUNDS
The British Business Bank is the largest UK based LP
investing in UK VC, giving the Bank access to verified
financial returns information from the funds that it has
invested in. The numbers presented in this report may
differ to the financial returns reported in the British
Business Bank and British Patient Capital (BPC) annual
reports due to differences in fund coverage and time
periods assessed.1
The British Business Bank has analysed the performance
of the Enterprise Capital Fund (ECF) programme, which
was established in 2006 to increase the amount of equity
finance available to high growth innovate SMEs affected
by the equity gap.2 For VC funds supported by the ECF
programme in the 2006-2016 cohort, the pooled DPI
multiple is 0.47 overall (0.50 for other LPs). The ECF pooled
DPI multiple is lower than the wider UK VC market DPI of
0.77, which may reflect the earlier stage nature of these
funds compared to the wider UK market, meaning realised
returns take longer to achieve.
VC funds within the ECF programme have a pooled TVPI
multiple of 1.41 (1.78 for other LPs), which shows the ‘geared’
returns structure for private sector LP investors is working
as returns are now higher than the wider UK VC market
of 1.63 within the 2006-2016 cohort. This higher level
of performance could make the ECF programme an
attractive asset class for LP investors when considering
UK VC.
BPC is investing on a commercial basis into VC funds
targeted at UK scale-up companies. For those VC funds BPC
has invested in between 2013-2016, the pooled DPI
multiple generated to date is 0.18 and this is identical to
the wider UK VC market DPI for funds of the same vintage.
Although, the BPC pooled TVPI multiple of 1.29 is
slightly lower than the UK market benchmark of 1.40 for
funds of the same vintage, the BPC median fund TVPI
performance is 1.21. This is higher than the equivalent
UK market figure of 1.18. It is too early in the life of BPC
to draw meaningful conclusions concerning future
performance as most BPC invested VC funds are too
young to be included in the analysis.
3. UK VC RETURNS FOR FUNDS ESTABLISHED SINCE
2002 ARE CLOSE TO CURRENT AND HISTORIC US VC
FUND PERFORMANCE
It is widely perceived that US VC financial returns are
consistently and substantially higher than UK VC financial
returns, but analysis of data within this report suggests
that this is not the case.
In fact, UK VC funds with a 2002-2007 vintage
outperformed US VC funds of the same vintage. UK funds
within this vintage year cohort generated a pooled DPI of
1.95 compared to 1.04 for US funds. This is due to strong
performance of UK funds within this cohort, but also due
to the underperformance of US VC funds, possibly a result
of the legacy of the dot-com bubble bursting.
Moreover, the above-mentioned pooled DPI returns for
UK VC funds are only slightly lower than the historical
performance of US VC funds in the 1980’s and 1990’s.
The average yearly pooled DPI multiple for US funds in
the 1980’s was 2.22 and for funds established in the 1990’s
the figure was 2.56. Although US VC funds generated very
high financial returns (DPI multiples in excess of 4) in several
vintage years during the mid-1990s (e.g. 1993 to 1996),
these returns were not sustained over the entire 1980-
1999 time period.
From 2007 onwards, the financial performance of UK VC
funds is slightly lower than the US. UK pooled TVPI is 1.54
compared to 1.88 for US funds with 2007-2011 vintage.
Whilst both UK DPI and TVPI pooled multiples are only 0.3
points lower than US funds, with the same 2007-2011
vintages, the median figures are much closer.
Over the combined 2002-2011 vintage year cohort,
performance of UK VC funds is slightly ahead of the US
on both pooled DPI and TVPI measures, providing further
evidence that UK VC performed relatively well over the
whole decade.
The UK has a similar fund distribution of TVPI returns
as US funds, but the top performing US funds have
substantially higher TVPI multiples than the top UK VC
funds. This suggests that UK VC could be an attractive
asset class for LPs considering investing in US VC.
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ANALYSIS OF UK VC FINANCIAL RETURNS
This report aims to shed new light on the financial returns
from investing in VC by examining existing VC data sources
alongside information on the financial performance from
the funds the Bank has invested in. The report does not
compare the performance of VC against other asset
classes or examine the financial returns from investing
in wider PE.
THE STRUCTURE OF THE REPORT IS BROKEN DOWN
AS FOLLOWS:
• Section 1 provides an overview of different metrics
for measuring VC financial returns including IRR,
money multiples (DPI and TVPI) and other metrics
used within the VC industry.
• Section 2 describes the different data sources that
provide information on financial returns.
• Section 3 compares reported financial returns across
different data sources and investigates why these
differences exist.
• Section 4 then examines financial returns across time
to identify common time periods in which to compare
performance. An assessment of US VC returns in the
1980’s and 1990’s is also made in order to assess the
potential long-term performance of this asset class
from funds that are fully liquidated.
• Section 5 provides an empirical comparison of
the financial returns across the UK and US using a
composite dataset that combines fund level data
from Preqin, PitchBook and British Business Bank
commitments into VC funds.
• Section 6 assesses the performance of VC funds the
British Business Bank and BPC has invested in and
benchmarks them against the wider VC market for
funds of a similar vintage.
• Section 7 sets out conclusions and discusses next
steps for improving financial returns data.
Information on the methodology used to create the
combined dataset can be found in the report’s appendix.
• Long-time illiquid asset: The typical life cycle of an
LP commitment into a VC fund is usually 10 years or
more, and there are limited liquidity options for LP’s
to withdraw their commitments if they change their
minds or their circumstances change.10 The final
performance of a fund is not known until the fund has
fully exited all of its investments, which can take many
years to occur. British Business Bank research11 shows
that the average time from initial investment to IPO
is 5.3 years for successful UK VC-backed companies.
Fund managers often cannot wait until returns are fully
realised to report them, as they are required to report
progress to the fund investors (LPs) under the Limited
Partnership Agreements (LPAs) and also are likely to
be thinking about raising subsequent funds.12 This
creates difficulty because active funds will have
unrealised returns (the theoretical value of the equity
stakes taken), and any reported return number must
estimate the value of these assets.
• Unrealised investments are difficult to value:
This is especially the case when a substantial proportion
of a fund’s portfolio is made up of pre-revenue companies
with most of their value in intangible assets.13 Although
funds follow and reference the International Private
Equity and Venture Capital Board’s (IPEV) valuation
guidelines, valuing equity stakes in non-listed
companies involves an element of judgement.14
Company valuations can also change rapidly when
the company’s circumstances change, for instance,
when the company receives a major contract or the
technology is proven to work. It is difficult to extrapolate
10 years of future cash flows to value a pre-revenue
company when there are large amounts of market
and technology risk.
• Existence of a ‘J-curve’: PE is a long-term investment
which, in the first few years, will normally show a
decline in the Net Asset Value (NAV) before showing
any significant uplift. This is often the effect of
management fees being paid out, as well as the
costs of initial capital being deployed into companies.
Company failures become apparent more quickly,
but company successes take longer to materialise.
There are also complexities around classifying VC funds, when
funds make deals across different investment stages including
PE deals and issues around specifying the vintage year.15
other asset classes is important for signalling the value
of investing in VC.
There is a lack of robust information on VC financial
returns at the individual investment level and at the fund
level. This is holding back the wider asset class as without
evidence of a strong track record of generating financial
returns in line with the level of risk taken, institutional
investors are wary of committing or increasing funding
allocation to VC. Reliable data demonstrating high VC
returns could help unlock greater institutional funding
into this asset class. This in turn leads to greater VC
fundraising and increased amounts of equity finance
available to smaller businesses with high growth potential.
Accurately measuring the returns of VC funds is very
difficult because the data is known to be ‘subject to biases’.8
The nature of the VC industry amplifies these problems:
• No requirement for VC funds to publicly disclose
information: PE is by its nature ‘private’ with fewer
requirements to make information available compared
to investments made in public companies. VC investors
are not required to disclose information to regulators
about specific deals they make or the performance
of those deals, so a comprehensive dataset with full
industry coverage doesn’t exist.
• Wide dispersion in industry performance:
It is estimated that the top US VC firms make a
disproportionate contribution to total industry returns.9
Therefore, omission of even a small number of these
top VC funds can heavily affect the overall returns
reported.
INTRODUCTION
Venture Capital (VC) is a type of Private Equity (PE) finance
provided by investors into small early-stage companies
with the potential for very high growth. Finance is provided
in return for an equity stake in the business and investors
generate a financial return (or profit) on their investment
when they sell their stake through an Initial Public Offering
(IPO), trade sale or secondary sale. VC-backed companies
are unlikely to have positive cash flows, or even be
generating any sales at the time of investment. It may
therefore take many years until a company has developed
its technology and market position to allow a VC investor
to exit with a positive return. Given the technology and
market risks facing early stage companies of this type, a
high proportion of investments will not return their capital.
For instance, data from one investor showed 65% of its
VC investments failed to return their invested capital.4
If equity investors select the right deals, they can make
very high returns from these investments. For example,
Sequoia Capital (a US VC firm) generated approximately
50 times returns on its $60m investment into WhatsApp
when it was acquired by Facebook in 2014.5 The VC model
relies on a small number of successful investments to
pay for the investments that fail, with 10 times returns
being quoted as a starting target.6 It is widely recognised
that the Pareto Principle applies to VC returns with 20%
of investments bringing in 80% of returns, and 1% of
investments often bringing in more revenue than the
rest of a fund’s investments combined.7
The PE and VC industry has grown and matured substantially
to become an established part of many institutional
investors’ portfolios, with VC now recognised as a
standalone asset class. Institutional investors are often
looking to invest in long term growth asset classes, and
VC funds achieve this with a typical life span of ten years
or more. A history of generating good financial returns,
both in absolute terms and relative terms compared to
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ANALYSIS OF UK VC FINANCIAL RETURNS
MONEY MULTIPLES
Multiples provide a relatively simple measure of an
investor’s return on their invested capital, providing a
cash-on-cash measure of how much investors are receiving
back from the capital they have committed. Multiples are
useful in that they show the scale of the returns but a key
limitation is that the time value for money is completely
ignored.19 A fund returning twice the invested amount
will have the same multiple regardless of whether the
return took two or ten years to materialise.
Two multiples that are typically reported by funds are
Distribution to Paid-In capital (DPI) and Total Value to
Paid-In capital, but it is also useful to know the Residual
Value to Paid-In Capital (RVPI) which is the difference
between the two multiples: TVPI = DPI + RVPI
Distribution to Paid-In capital (DPI): The ratio of
cumulative distributions to LPs divided by the amount
of capital contributed by the LPs. At the start of a fund’s
life, this ratio will be zero due to there being no exits to
date but will begin to increase as distributions (portfolio
company exits) occur. When the DPI is equal to one the
fund has broken even, as the money paid in is equal to
money distributed. Any number above one indicates that
the fund has paid out more than has been paid in, so
that LP investors get more than their initial capital back.
This measure is therefore useful at the later stages of a
funds life as it is an actual measure of fund performance
directly measuring cash received from exits.
MODIFIED INTERNAL RATE OF RETURN (MIRR)
Assuming a reinvestment rate equal to the fund’s cost of
capital is a more reasonable assumption than using the
same rate as the original investment and it is precisely
for this reason that the Modified Internal Rate of Return
(MIRR) has been developed.17 The MIRR uses a similar
technique to IRR but assumes that positive cash flows are
reinvested at the firm's cost of capital. The initial outlays
are financed at the firm's financing cost rate, separate
from the rate of return of the project, at which cash flows
can be reinvested. It then calculates the rate of return by
looking at all project cashflows, and accounts for the time
value of money.
As such, the MIRR is designed to more accurately reflect
what is done with intermediary cash flows and give a more
accurate picture of an investment’s profitability. However,
re-investment rates are likely to vary for different investors,
based on their investment opportunities. MIRRs should
only be compared to other MIRRs calculated using the
same re-investment rate. Therefore, VC organisations
like Invest Europe, which represents the European VC
industry, do not recommend using MIRR as a measure for
fund managers reporting returns to their LP investors18
and MIRR does not appear to be widely used by the industry.
SECTION 1:
VC FUND FINANCIAL
RETURN METRICS
There are several ways to measure VC and PE financial
returns. It is important to acknowledge that no single
measurement represents the best way of measuring the
performance of VC investments and deciding which measure
to use is often context specific. When reporting the
financial returns of their portfolios, fund managers and
investors typically use the following types of measure:
• Internal Rate of Return (IRR)
• Modified Internal Rate of Return (MIRR)
• Money multiples:
- Distribution to Paid-In capital (DPI)
- Residual Value to Paid-In capital (RVPI)
- Total Value to Paid-In capital (TVPI)
INTERNAL RATE OF RETURN (IRR)
IRRs are widely used by the PE industry to measure returns
because they offer a way of comparing two investments
with irregular cash flow timings and sizes. The IRR represents
the discount rate at which the Net Present Value (NPV) of
an investments future cashflows is equal to zero. The IRR
measure incorporates the time value of money, so that
£100 of returns generated sooner is valued more than
£100 realised in the future.
Whilst this measure is useful, the fundamental issue of
using the IRR in isolation is that it rewards quick exits in the
early years. There is the potential for fund performance
to be artificially improved by fund managers exiting their
investments sooner, rather than the fund manager allowing
the company to grow to maximise its value.16 This is because
IRR implicitly assumes the intermediary cash flows generated
by an investment are reinvested and return the same IRR
as the original investment. This is unlikely to be realistic
as it implies a fund immediately finds an equally
profitable opportunity to reinvest in.
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ANALYSIS OF UK VC FINANCIAL RETURNS
OTHER FACTORS
There are large variations in performance between the
top performing funds and the remaining funds. It is
therefore useful to look at both the pooled mean and
median fund return figures, alongside the upper and lower
quartiles. The VC industry has a focus on benchmarking
upper quartile funds but there is no universal method
for choosing the reference period or specific reporting
metric, which will fluctuate from year to year depending
on the composition of funds included.24
Pooled Mean: The return for the total group of funds being
analysed. This is calculated by aggregating the realised
and unrealised values across all funds, which accounts
for different fund sizes. This is the best measure for
estimating total market returns as it includes the
performance of all outlier funds.
Median: The fiftieth percentile. The return of a fund in
the middle of the ranking. This represents the return of
a ‘typical fund’.
Upper quartile: The return of the fund in the top 25th
ranking. When all VC funds are considered, upper quartile
fund performance is higher than the remaining three
quarters of other funds.
Another factor to consider when assessing financial
return metrics is the impact of fees. Management fees allow
the fund manager to meet their own operating costs,
including salaries for the team and regulatory compliance.
Carried interest fees relates to the fund manager’s
performance-related share of realised profits from the
fund. Management fees can be substantial. Most financial
return metrics are reported net of fees (i.e. fees are deducted).
Finally, it is also important to acknowledge money
multiple returns are reported in nominal terms. This is an
important consideration given LP’s commit capital over a
long time period lasting more than 10 years, and the real
value of distributed returns will be eroded by inflation.
Residual Value to Paid-In capital (RVPI): The sum of
cumulative net asset value of the investment, divided by
the capital contributed by the LPs. It calculates the multiple
of the investment that would be returned to investors if the
unrealised assets were sold at current valuations. Valuation
of early stage companies can be very difficult because of
the inherent uncertainty surrounding the prospects of
the company. However, the concept of ‘fair value’ is used
to value the unrealised assets at each measurement date,
with a number of recognised valuation techniques used.20
The ‘Book value’ of unrealised investments is useful
for assessing performance during the early part of a funds
life, but offers no guarantee on future performance as
valuations can change over time due to changes in wider
economic and market conditions. For instance, a high RVPI
may be indicative of an inflated market versus an accurate
representation of how much the portfolio can actually be
sold for eventually.21 Globally, there are a number of well-
known later stage unicorn businesses that have exited
under their last private valuation round (known as a down
-round). This will effectively lead to disappointed LP investors
as the DPI does not match up to the projected RVPI.22
Total Value to Paid-In capital (TVPI): The sum of
cumulative distributions to LPs and the net asset value of
the investments, divided by the capital contributed by the
LPs. It calculates what multiple of the investment would
be returned to LP investors if the unrealised assets were
sold at current valuations and added to distributions that
have already been received. This is useful for assessing
performance during the early part of a fund’s life, like the
RVPI measure. While this can provide a more complete
picture on the returns from the fund, it is significantly
impacted by the valuation that is placed on the unrealised
investments remaining in the fund, although the impact
should reduce as the fund matures and investments
are realised.
Given this difference, many LPs rely on the TVPI measure
earlier in the life of a fund and DPI measure towards the
end of a fund’s life. Money multiples tend to be a more
conservative measure than the IRR measure as a zero-rate
of reinvestment is assumed for cash flows.23
SECTION 2:
SOURCES OF VC FUND
FINANCIAL RETURNS
INFORMATION
There are numerous data sources measuring VC financial
returns. This section provides a short overview of the
main types of data provider and a description of how
they collect this information. Section 3 then provides a
comparison of the reported financial returns across these
different data sources.
There are three main types of data sources providing
information on VC market financial returns:
• VC Associations
• Commercial data providers: Named funds
• Commercial data providers: Anonymised funds
VC ASSOCIATIONS:
There are numerous industry associations across the
globe representing the interests of the PE and VC
Industries, based on their membership which largely
comprises of fund managers. These organisations often
report the investment activity of their members as well
as the financial performance. The British Venture Capital
Association (BVCA) represents the interests of the UK VC
and PE Industry.25
BVCA’s membership comprises of over 260 PE and VC
fund managers. The BVCA, in conjunction with PwC and
Capital Dynamics, undertakes an annual survey of its
eligible members asking about the performance of the
funds that they manage. To be eligible for inclusion the
PE firm must be a full BVCA member, raise money from
third-party investors and manage that money from
the UK (although it may be invested elsewhere). BVCA
members investing from their own balance sheet, quoted
vehicles such as VCTs and listed PE are excluded from the
fund returns.
The BVCA annually publishes financial returns
information through its Performance Measurement
Survey.26 The report examines the performance of PE
and VC funds and then benchmarks them against other
asset classes. Overall, 86 fund managers (with a total of
629 funds under management) responded to the latest
2017 survey. Fund data is presented anonymously in
pre-defined categories relating to vintage year. Whilst
this provides useful segmentation of the data, it is not
possible to disaggregate the data further.
COMMERCIAL DATA PROVIDERS: NAMED FUNDS (E.G.
PREQIN AND PITCHBOOK)
Commercial data providers like Preqin and PitchBook
primarily source information on the performance of
funds from public filings by pension funds, Freedom Of
Information (FOI) requests and voluntary disclosures by
fund managers (General Partners-GPs) or LPs.
14 BRITISH BUSINESS BANK
15
ANALYSIS OF UK VC FINANCIAL RETURNS
These data providers allow customised searches on
the performance of individual funds or tightly specified
groupings of funds, e.g. over specific vintage years and
geography. There are several recognised issues which can
affect the reliability of data sources relying on self-disclosure
and FOI submissions for their information:27
1. A lot of the data relies on voluntary submissions from
fund managers themselves. There may be incentives
for fund managers to report returns when they are
performing well, especially if the fund manager is
trying to raise another fund, or to stop reporting if
performance subsequently deteriorates.
2. Due to the reliance on disclosure from public pension
funds, funds without pension fund investors may not
be as well captured. This could potentially cause bias
in the data if pension funds invest in funds with different
characteristics to other types of institutional investor.
European coverage is likely to be lower as this reporting
requirement does not apply to European pension funds.
3. These datasets also publish reported IRRs/ multiples
without the underlying cash flow data, which often
makes it difficult to verify the accuracy of the
reported figures.
PREQIN:
• Preqin is a provider of data and intelligence to the
alternative assets industry including PE, real estate,
hedge funds, infrastructure, private debt and natural
resources. It collects a range of information including
funds and fundraising, performance, fund managers,
institutional investors, deals and fund terms. Preqin
has financial returns data for 1,254 US and European
VC and Growth Capital funds with a vintage year
between 2002 and 2018.
PITCHBOOK:
• PitchBook is a source of information on global trends
in PE and is widely used by the VC industry. PitchBook
collects a wide range of data including deal-level
information, fund performance, fundraising data
and data relating to company exits. Pitchbook has
financial returns data for 1,439 US and European
VC and Growth Capital funds with a vintage year
between 2002 and 2018.
COMMERCIAL DATA PROVIDERS: ANONYMISED FUNDS
(E.G. CAMBRIDGE ASSOCIATES, BURGISS AND EFRONT-
PEVARA)
These companies source information in slightly different
ways to one another, but mainly through the services they
provide to Limited Partners and General Partners. For
instance, Cambridge Associates is a global investment firm
that manages custom investment portfolios for its clients.
Burgiss is a provider of investment decision support tools
for private capital, and sources data through private disclosure
by LPs. eFront is a software provider of end-to-end
solutions for alternative investments.
These data sources have less sampling biases compared
to data providers which source their information through
web scraping, regulatory and voluntary disclosures, but
coverage is limited to funds included in the service provided.
For instance, Cambridge Associates provides investment
advisory services to endowments and foundations, which
may have different investment strategies compared to
the wider market.28 Due to restrictions placed on the
subsequent use of the data by the funds and LPs submitting
their data, financial returns information can only be
accessed in aggregated anonymised form and so is not
possible to identify individual funds or examine the data
further. In many cases, it is not possible to undertake the
analysis of funds based in the UK. For this reason, these
datasets are not examined further as part of this report.
OTHER SOURCES OF INFORMATION ON VC FINANCIAL
RETURNS
The British Business Bank is the largest UK based LP
investor in UK VC.29 The Bank monitors the performance
of the funds it has invested in by collecting information
directly from fund managers. LP status ensures this
information is fully verified and has full coverage of funds
it has invested in. In line with the Bank’s role in addressing
market failures in finance markets, the characteristics of
funds invested in through the Enterprise Capital Fund (ECF)
programme may differ to the wider UK VC market due
to their focus on early stage market, smaller deals sizes
affected by the equity gap and emerging fund managers.
Since 2013, BPC through the Bank’s previous VC Catalyst
programme has invested on commercial terms in VC
funds targeting UK scale up companies.30 It is early days
in the life of these funds, but a summary of performance
to date compared to the wider VC market is included in
Section 6.
The European Investment Fund (EIF) is also a large investor
in VC funds and has published information on the
performance of its VC portfolio by vintage year and country.31
There are other sources of information on VC markets
including Crunchbase32, Dealroom33 and Beauhurst.34
These provide information on VC deals, exits and investors,
but currently do not provide information on VC fund returns.
16 BRITISH BUSINESS BANK
17
ANALYSIS OF UK VC FINANCIAL RETURNS
1.50
1.62
2.06
1.55
1.74
therefore may not be fully representative of the wider UK
VC market. The BVCA data in the sample is only reported as
of December 2017, whereas data from the other providers
has been updated much more recently. It is notable that
the BVCA pooled mean average is above the upper quartile
fund performance, which could suggest the BVCA returns
figures are influenced by a small number of highly
successful larger funds.
Drawing comparisons in performance between the British
Business Bank backed funds and the PitchBook and Preqin
reported multiples may also not be a fair comparison. Most
of the British Business Bank supported funds within the
2002-2013 vintage year cohort are part of the ECF
programme,37 which is predominately targeted at addressing
market failures affecting early stage companies, through
investment in emerging fund managers. As a result, the
funds in this sample are therefore likely to be smaller than
the wider VC market and targeting companies at an earlier
stage of development. Also, since the ECF programme only
started in 2006 the British Business Bank portfolio within
this sample is weighted to the later vintage years (2006-
2013).38 This could adversely affect reported performance
as the fund managers in the British Business Bank cohort
will have had less time on average to exit their investments.
SECTION 3:
VC FINANCIAL RETURNS
ACROSS DIFFERENT
DATA SOURCES
There is uncertainty on the actual performance of UK VC
funds due to the large variation between different data
sources in the reported VC return for the same vintage
years. This makes it difficult for institutional investors
to assess the track record of the asset class.
Figures 1 and 2 show the pooled average, median average
and the upper/ lower quartile DPI and TVPI multiples for
UK VC funds within a 2002-2013 vintage year cohort.
This time period was selected to be consistent with the
data reported in the latest full BVCA Measurement Report.35
Reported pooled average DPI multiples for the 2002-2013
vintage cohort of UK-based VC funds vary between data
sources from 0.87 to 1.54, whilst reported pooled TVPI
multiples for the same cohort vary from 1.50 to 2.06.36
Commercial datasets like PitchBook and Preqin tend to report
higher fund financial returns for the UK when compared
to published BVCA numbers and British Business Bank
programmes. This could be a result of fund selection bias
with good performing funds having a higher propensity
to disclose their data to PitchBook and Preqin, or poorer
performing funds choosing to not publicly disclose their
financial returns. The BVCA data may also differ because
coverage reflects its membership. BVCA includes the names
of the fund managers responding to its survey, which
mainly comprises of established fund managers, and
FIG 1
COMPARISON OF UK VC 2002-2013 VINTAGE YEAR DPI FUND
PERFORMANCE BY DATA SOURCE  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
Lower Quartile
Lower Quartile
Upper Quartile
Upper Quartile
Median
Median
Pooled
Pooled
1.40
1.60
1.80
DPI1.20
1.00
0.80
0.60
0.40
0.20
0.00
n=84
n=37
n=35
n=14
n=63
BVCA
PitchBook
Preqin
BBB
(ECF & BPC)
Combined
(PitchBook, Preqin
& BBB)
0.87
0.90
1.54
0.67
1.03
FIG 2
COMPARISON OF UK VC 2002-2013 VINTAGE YEAR TVPI FUND
PERFORMANCE BY DATA SOURCE  
Source: British Business Bank analysis of BVCA, PitchBook, Preqin and BBB MI data
2.50
TVPI1.50
2.00
1.00
0.50
0.00
n=84
n=37
n=35
n=14
n=63
BVCA
PitchBook
Preqin
BBB
(ECF & BPC)
Combined
(PitchBook, Preqin
& BBB)
18 BRITISH BUSINESS BANK
19
ANALYSIS OF UK VC FINANCIAL RETURNS
Only a small number of the funds the British Business Bank
has invested in provide data to PitchBook or Preqin on their
financial returns. The Bank has compared the performance
of individual funds it has invested in, against the data these
funds have reported to PitchBook or Preqin in order to
assess the reliability of the self-reported data. In most
cases, the reported figures are comparable to the ones
recorded under the Bank’s MI system with only small
differences, suggesting these commercial data sources
give a reliable indication of fund performance.
Reported DPI multiples in commercial data providers
generally lie within 0.05 points of the figures reported in
the Bank’s MI data and the pooled TVPI generally lie within
0.40 points of the figures the Bank holds on fund
performance. Differences may exist due to timing, LPs
investing at first or second close and possible exchange rate
effects but there is no evidence of these funds systematically
reporting higher returns to commercial data providers.
However, for a very small number of funds the reported
figures are substantially different, the reasons for which
cannot be explained by simply looking at the data.39 This
analysis therefore suggests the underlying quality of
reported returns from named fund databases is of
sufficient quality to draw conclusions at the market level.
A comparison is also made between PitchBook and Preqin
for the US and Rest of Europe for the same cohort of funds
with vintage years 2002-2013.40 Figure 3 shows the reported
PitchBook and Preqin financial return multiples for the US
are very similar to one another. TVPI multiples for US funds
in this cohort are 1.73 and 1.60 for PitchBook and Preqin
respectively. Pooled DPI is also very close at 1.02 for
PitchBook and 1.01 for Preqin. This provides reassurance
that the US VC returns reported by PitchBook and Preqin
are an accurate reflection of VC performance in the US.
Figures 4 and 5 further examines the accuracy of PitchBook
and Preqin’s reported figures by comparing them to Cambridge
Associates data for the equivalent vintage years.41 All three
data sources show similar yearly trends in their reported
TVPI and DPI multiples.
FIG 3
COMPARISON OF US VC 2002-2013 VINTAGE YEAR FUND
PERFORMANCE BY DATA SOURCE  
Source: British Business Bank analysis of PitchBook and Preqin
2.50
Multiple2.00
1.50
1.00
0.50
0.00
n=453
DPI
TVPI
n=489
n=453
n=489
PitchBook
PitchBook
Preqin
Preqin
1.02
1.01
1.73
1.60
FIG 4
COMPARISON OF US VC 2002-2017 VINTAGE YEAR POOLED DPI FUND
PERFORMANCE BY DATA SOURCE  
Source: British Business Bank analysis of PitchBook, Preqin and Cambridge Associates
PitchBook
PitchBook
Preqin
Preqin
Cambridge Associates
Cambridge Associates
1.80
Pooled DPI1.40
1.60
0.80
1.00
1.20
0.60
0.20
0.40
0.00
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
FIG 5
COMPARISON OF US VC 2002-2017 VINTAGE YEAR POOLED TVPI
FUND PERFORMANCE BY DATA SOURCES  
Source: British Business Bank analysis of PitchBook, Preqin and Cambridge Associates
4.00
Pooled TVPI3.00
3.50
2.50
2.00
0.50
1.00
1.50
0.00
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Lower Quartile
Upper Quartile
Median
Pooled
20 BRITISH BUSINESS BANK
21
ANALYSIS OF UK VC FINANCIAL RETURNS
Whilst there is little variation in reported DPI and TVPI
multiples for US VC funds, the reported money multiple
performance figures for funds based in the Rest of Europe
(i.e. excluding the UK) show considerable variation. Figure 6
shows PitchBook gives an estimated pooled DPI multiple
of 1.20 for Rest of Europe VC funds compared to 0.76 for
Preqin over the same 2002-2013 vintage year cohort.
Figure 6 also shows differences exist in the reported pooled
TVPI multiple with PitchBook reporting a multiple of 1.80,
and Preqin reports a multiple of 1.52. We are not aware of
any other published sources of information on European
VC returns that can be used to verify the figures, but the
large range in reported performance multiples creates
uncertainty around the actual level of performance for
Rest of Europe VC funds.42
EXPLAINING THESE DIFFERENCES
One reason for the divergence in the reported Rest of
Europe returns figures between different data providers
is the low propensity of VC funds and LPs disclosing their
financial returns. Low coverage increases uncertainty
around the actual level of financial returns as the sample
of funds submitting returns data may not be representative
of the wider fund population.
US Freedom Of Information (FOI) legislation requires US
public pension funds to disclose the performance of their
investments into VC funds. For example, the California
Public Employees’s Retirement System (Calpers) publicly
publishes fund level performance on its website of all the
PE funds it has invested in, covering a total of 253 funds.43
This means data providers tend to have more representative
coverage of US VC funds. Whilst, the UK has no explicit legal
obligation for public pension LPs to disclose performance
data, the UK generally benefits from an open disclosure
culture in order to promote the market and attract private
institutional investors.
Comparing the number of VC funds with disclosed TVPI
multiples in Preqin to the overall reported population of
VC funds for each vintage year shows the relative coverage
of funds disclosing data. Figure 7 shows Preqin captures
the TVPI information of just 13% of the Rest of Europe
VC funds with 2002-2017 vintage year. Coverage is likely
to not be representative of the wider population of VC
funds and heavily dependent on the composition of
funds included in the sample.44
A higher proportion of US funds (21%) disclose TVPI
multiples, but Figure 8 shows the proportion has fallen
over time.45 As a result, Preqin now captures financial returns
information for a higher proportion of UK VC funds (22%)
than the US over 2002-2017 vintage years. The decline
in coverage for US VC funds since 2002 is also evident
when looking at PitchBook data. Further analysis reveals
it does not appear to be as a result of declining participation
by public pension funds in US VC. A possible explanation
is that since the financial crisis US fund managers and
LPs have become less willing to disclose financial returns
information, especially in the early part of a fund’s life.46
The low proportion of funds reporting financial returns
information relative to the population of VC funds in the
market is common across all VC datasets and leads to
increased uncertainty around the actual financial returns.
FOI legislation in the US may help contribute to a more
representative sample of US funds providing data.
The relatively low proportion of VC funds disclosing
financial returns information provides strong justification
for combining fund level data from different data sources
to increase coverage, so that the sample of funds included
is more representative of the wider population of VC funds.
Fund level data on the performance of VC funds from Preqin
and PitchBook was combined with data from the British
Business Bank to create a composite dataset. This allows
a more reliable assessment of VC returns to be made
across different time periods and geographies.
Funds appearing more than once were removed from the
combined dataset to avoid double counting. The appendix
at the back of the report provides more details of the
methodology used to aggregate and clean the dataset.
FIG 6
COMPARISON OF REST OF EUROPE VC 2002-2013 VINTAGE YEAR FUND
DPI AND TVPI PERFORMANCE BY DATA SOURCE  
Source: British Business Bank analysis of PitchBook and Preqin
n=37
DPI
TVPI
n=88
n=37
n=88
PitchBook
PitchBook
Preqin
Preqin
1.20
0.76
1.80
1.52
2.00
Multiple1.60
1.80
1.20
1.40
1.00
0.80
0.20
0.40
0.60
0.00
Lower Quartile
Upper Quartile
Median
Pooled
FIG 7
INCIDENCE OF VC FUNDS REPORTING FINANCIAL RETURNS MULTIPLES BY GEOGRAPHY

Number of VC funds
Number of funds
Proportion (% in bracket

with 2002-2017 vintage
reporting TVPI multiples
2002-2012 vintage)
UK
236
51
22% (24%)
Rest of Europe
1,045
135
13% (14%)
US
3,363
697
21% (29%)

Source: British Business Bank analysis of Preqin (5th September 2019)
ROE
UK
US
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
FIG 8
PROPORTION OF VC FUNDS REPORTING TVPI DATA BY VINTAGE
YEAR (3-YEAR MOVING AVERAGE)  
Source: British Business Bank analysis of Preqin (5th September 2019)
40%
Per cent35%
30%
25%
20%
5%
10%
15%
0%
22 BRITISH BUSINESS BANK
23
ANALYSIS OF UK VC FINANCIAL RETURNS
The dot-com bubble burst in 2000, ending investors’
exuberance around a shift towards a new economy based
on the internet. For VC funds established towards the end
of the bubble from 1997, performance was substantially
lower, with pooled and median DPI multiples of less than
one in several years meaning these funds failed to return
their investors capital.
Assessing long run US VC financial returns over a 20-year
time horizon, confirms very high fund performance was
not sustained over the entire time period. Figure 10 shows
the yearly average reported pooled DPI for funds with a
1980’s vintage was 2.56, and for VC funds with a 1990’s
vintage, the pooled DPI multiple was 2.22. The data
challenges the perception that the US VC industry
consistently produces very high fund returns and provides
a benchmark for judging the current performance of the
VC industry in the next section of the report.
FIG 10
POOLED AND MEDIAN DPI FOR US VC FUNDS

Average DPI
Average DPI

1980-1989
1990-1999

vintage years
vintage years
Pooled DPI
2.56
2.22
Median DPI
2.06
1.51
Number of funds
181
356
Source: British Business Bank analysis of Preqin
49.5% to 28%. Changes to the Employee Retirement Income
Security Act (ERISA) in the same year allowed pension
funds to consider VC a ‘prudent’ investment,48 resulting
in a flow of institutional money into VC, and providing
the blueprint for how the VC industry operates today.
Exploring the long run returns generated by the US VC
industry provides an insight into what high level of financial
returns might look like in a mature market. Preqin records
financial returns data for US VC funds with a vintage of
1980 onwards.49 Figure 9 shows US VC funds performed
extremely well for selected years in the mid 1990’s with
pooled DPI multiples in excess of 4 between 1993 and
1995, at least 3 from 1991 to 1996. These high returns
were driven in part by the emergence of the internet,
albeit resulting in the dot-com bubble in the 1990’s,
which led to rapidly increasing valuations and a flood
of new technology company IPOs.
SECTION 4:
LONG RUN VC
FINANCIAL RETURNS
This chapter reviews long run financial returns, first for
the US VC markets and then for the US and UK combined
VC markets, highlighting both the long run trends and the
significant variation between annual cohorts.
HISTORICAL US VC RETURNS: 1980-2001
The US VC market is widely acknowledged as the most
developed VC market in the world, with the industry having
matured over many years. The first US VC investors emerged
in 1946, but it was the 1950’s and 1960’s before the US VC
industry truly established itself with the Small Business
Investment Act of 1958 which enabled the Small Business
Administration (SBA) to grant licenses to Small Business
Investment Companies (SBIC’s) to invest in companies.
Many technology investment companies were launched
in the early 1970s, including many well-known names
such as Kleiner Perkins and Sequoia Capital.47 The increase
in VC in the 1970’s coincided with two legislative changes.
The 1978 Revenue Act reduced capital gains tax from
Pooled average
Median
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
1995
1991
1996
1992
1997
1993
1998
1994
1999 2000 2001
FIG 9
POOLED AND MEDIAN DPI FOR US VC FUNDS BY VINTAGE YEAR 
Source: British Business Bank analysis of Preqin (5th September 2019)
8.00
DPI7.00
6.00
5.00
4.00
1.00
2.00
3.00
0.00
24 BRITISH BUSINESS BANK
25
ANALYSIS OF UK VC FINANCIAL RETURNS
Pooled TVPI multiples decline below 1.50 for funds
with a vintage of 2015 onwards, but this reflects their
relative immature nature rather than a decline in the
underlying fund performance.53 Funds are affected by the
J-curve in the early stages of their life, meaning the
reported returns of funds in the first couple of years do not
generally reflect the return investors can expect over the
longer term. Fund managers may keep the value of their
unrealised investments close to cost until there is evidence
of an increase in their value, whilst company failures may
become more apparent early on. Although the 2005 vintage
year performed well with a TVPI of 1.57, pooled TVPI was
less than 1.50 between 2002 and 2004 which may suggest
VC underperformed during the early part of the decade
as a result of the dot-com bubble bursting.
Median TVPI multiples were relatively poor in the early
2000’s at close to 1, but improved from 2005 onwards,
providing support that VC performance has improved
overall from the middle of the decade. Over the 10-year
period between 2005 and 2014, yearly median fund
TVPI returns averaged 1.47.
US AND UK VC RETURNS: 2002 ONWARDS
(POST DOT-COM BUBBLE)
Reviewing the performance of VC vintages from 2002
onwards removes funds whose active portfolios were
adversely affected by the bursting of the dot com bubble,
and therefore provides a more balanced view of market
performance. Figure 11 shows the pooled TVPI multiple
for US and UK VC funds varies from 1.12 in 2003 to 2.04
in 2011 and 2012. Likewise, the pooled DPI multiple
varies from 0.03 in 2016 to 1.29 in 2002.
It can take at least three years before VC funds start exiting
their portfolio companies through IPOs, trade sales and
secondary sales, but in practice the time scale to exit is
much longer. British Business Bank analysis of PitchBook
suggests UK VC-backed companies take 5.3 years on average
to exit via an IPO.50 This explains why fund DPI multiples
are less than 1 or close to zero for VC fund vintages after
2009. The DPI return multiple is therefore not a useful
measure of current or expected future performance
during the early part of a fund’s life.
The overall VC asset class has consistently generated
pooled TVPI multiples exceeding 1.50 from funds with a
vintage year from 2007 onwards for eight consecutive
years. Whilst representing a positive level of return, actual
performance is lower than the widely quoted 3 times return
benchmark many LPs quote as the required level of return
to offset the risk and illiquidity of the asset class.51, 52
DPI (pooled)
DPI (Median)
TVPI (Pooled)
TVPI (Median)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
FIG 11
OVERALL US AND UK VC FUNDS FINANCIAL RETURNS BY
VINTAGE YEAR 
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
2.50
Multiple2.00
1.50
0.50
1.00
0.00
SECTION 5:
VC FINANCIAL
RETURNS ACROSS
GEOGRAPHY
High performing outlier funds can cause annual returns
multiples to be volatile, as shown in Figures 10 and 11.
Grouping vintage years together can reduce some of the
distortion arising from annual noise and small sample sizes.
In this section the data is also disaggregated by geography
to compare UK and US performance, which further limits
the sample size. To provide more meaningful analysis,
vintage years are grouped into the following cohorts
to analyse performance:
• 2002-2006: Post dot-com bubble
• 2007-2011: Recession and economic recovery
• 2012-2016: Latest time period
These five-year time bands were selected to ensure broadly
comparable data between the two countries. However, it is
important to acknowledge that the UK and US economies
were in recession at different time periods during the global
financial crisis.54 In order to ensure the presented results
are not being caused by the choice of year category,
Figures 18 and 19 also provide a comparison between
the UK and the US over time using two-year vintage year
categories. Whilst UK data has a small number of funds
reporting data, the inclusion of verified performance data
from funds the British Business Bank has invested in means
robust comparisons can still be made. The approach taken
strengthens the reliability of the data and confirms the
validity of the findings presented below.
Due to the low coverage of Rest of Europe VC funds and
the large variation in reported performance between
different data sources, performance figures for Rest of
Europe are not reported in this section.
Greater importance should be attached to VC financial
returns generated by funds in the 2002-2006 vintage year
cohort, as these funds have had enough time to invest,
develop and exit most of their investments. Funds with
a vintage year between 2007-2011 have had more time
to develop than the most recent cohort, so can provide
an indication of likely performance going forward, but a
substantial proportion of the returns are not yet realised.
Reported returns for the most recent 2012-2016 cohort
are less likely to provide an accurate representation of actual
underlying fund performance. These funds are still early
in their life and will likely have not had enough time to
develop companies to exit, thus DPI is expected to be low.
Company valuations are also likely to be conservative due
to the J-curve effect, and thus the reported TVPI for this
cohort may not reflect the actual return investors can expect.
TVPI valuations are themselves based on portfolio company
valuations, which can change rapidly depending on company
specific and wider market factors. A recent example of this
is the ‘The We Company’, which was valued at $47bn
during its last private round of funding, but greater investor
scrutiny for its upcoming IPO could have valued the company
at little more than $10bn.55
Insufficient time to accurately
measure VC returns
26 BRITISH BUSINESS BANK
27
ANALYSIS OF UK VC FINANCIAL RETURNS
2002-2006 VINTAGE YEAR COHORT
Figures 12 and 13 compare the pooled mean, median and
upper/ lower quartile fund performance between the UK
and US for funds in the 2002-2006 vintage year cohort.
The UK exceeds the US in both the pooled TVPI and DPI
multiples for this cohort of funds. UK VC funds generated
a pooled DPI multiple of 1.95 and a pooled TVPI multiple
of 2.17, compared to 1.04 and 1.35 for US VC funds
respectively. Whilst there is less variation in the median
DPI, the UK median DPI at 0.94 is again higher than the
US multiple of 0.81.
UK VC funds outperforming their US counterparts in
the 2002-2006 vintage year cohort is due to the
combination of strong performance by UK funds and relative
underperformance by US funds compared to historical data.
Seven of the 24 UK VC funds included in this cohort reported
a TVPI greater than 2, demonstrating the stronger UK
performance was not caused by a single high performing
outlier fund. Verified performance data from British
Business Bank supported funds is also more positive for
these vintages, confirming the validity of these findings.
Analysis of Cambridge Associates data confirms the
relatively poor performance of US VC funds in this cohort,
especially compared to historic data. One explanation might
be that US VC fund managers were more greatly affected
by the bursting of the dot-com bubble in 2000 than UK fund
managers, leading to relatively more cautious investment
strategies amongst US fund managers in subsequent time
periods. This would also help to explain why US upper
quartile returns for this cohort are much lower than the
equivalent UK figures, despite median performance being
relative similar.
A pooled DPI multiple of 1.95 for UK VC funds in this vintage
year cohort appears to be comparable to the long-term
performance of US VC funds in the 1980’s and 1990’s.
US VC funds with a 1980’s vintage generated a pooled
DPI multiple of 2.22 on average and funds with a 1990’s
vintage had an average yearly pooled DPI of 2.56. In this
context, the performance of UK VC funds is respectable,
and could be attractive to LPs that have considered
investing into VC.
UK VC industry outperformance in 2002-2006 vintages was
grounded in strong market fundamentals. For institutional
LPs new to the VC asset class, without privileged access
to the most elite US VC funds, exposure to the wider UK
VC sector is broadly comparable to the wider US VC sector.
FIG 12
DPI (2002-2006 VINTAGE FUNDS) BY GEOGRAPHIC AREA  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
Lower Quartile
Upper Quartile
Median
Pooled
n=24
UK
US
n=278
DPI2.50
2.00
0.50
1.00
1.50
0.00
1.95
1.04
FIG 13
TVPI (2002-2006 VINTAGE FUNDS) BY GEOGRAPHIC AREA  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
Lower Quartile
Upper Quartile
Median
Pooled
n=24
UK
US
n=278
TVPI2.50
3.00
0.50
1.00
1.50
2.00
0.00
2.17
1.35
2007-2011 VINTAGE YEAR COHORT
Figures 14 and 15 compare performance between the UK
and the US of VC funds with a 2007-2011 vintage year.
Despite UK funds outperforming US funds in the previous
cohort, this was not sustained in the 2007-2011 vintage
cohort. UK VC funds generated a pooled DPI multiple of
0.86 and a pooled TVPI multiple of 1.54, compared to pooled
DPI of 1.12 and TVPI of 1.88 for US VC funds. However,
more positively, on both pooled DPI and TVPI multiples,
the UK is only 0.3 points lower than the performance of
US VC funds of the same vintage.
Median performance is much closer; UK funds generated
a median DPI of 0.72 compared to 0.71 in the US, and a
median TVPI of 1.42 compared to 1.52 in the US. The similarity
of median return multiples compared to the pooled returns
suggests that the US pooled figure is driven by the
performance of outlier funds that perform very well. This
finding is supported by looking at the performance of the
five highest performing funds in terms of reported TVPI
multiple within the 2007-2011 cohort. The five highest
performing US VC funds within this cohort had TVPIs
multiples in the range of 7 to 9, whilst the five highest
performing UK VC funds reported TVPI multiples in the
range of 1.80 to 2.50. The distribution of VC financial returns
between the UK and the US are explored further at the
end of this section.
It is also important to point out that the difference in
average VC returns between the UK and US for this cohort
is far less substantial than the variation in returns within
the individual VC markets. It follows therefore that investors
willing to put money into US VC could also consider the
UK market.
FIG 14
DPI (2007-2011 VINTAGE FUNDS) BY GEOGRAPHIC AREA  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
Lower Quartile
Upper Quartile
Median
Pooled
n=21
UK
US
n=255
DPI1.40
1.60
0.20
0.40
0.80
0.60
1.00
1.20
0.00
0.86
1.12
FIG 15
TVPI (2007-2011 VINTAGE FUNDS) BY GEOGRAPHIC AREA  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
Lower Quartile
Upper Quartile
Median
Pooled
n=21
UK
US
n=255
TVPI2.50
0.50
1.50
1.00
2.00
0.00
1.54
1.88
28 BRITISH BUSINESS BANK
29
ANALYSIS OF UK VC FINANCIAL RETURNS
2012-2016 VINTAGE YEAR COHORT
This final section explores VC financial returns between
the UK and the US for this most recent vintage year cohort.
Figures 16 and 17 compare performance between the UK
and the US of VC funds with a vintage year between 2012-
2016. It is too soon to assess the DPI performance of funds
in this cohort, as they are too early in their life to have had
sufficient time to develop and exit many of their portfolio
investments. Whilst UK VC funds have generated a pooled
DPI multiple of 0.36, which is higher than the US (0.22),
the median DPI for both geographies is 0. Therefore, most
funds in this cohort have not yet made a single portfolio
company exit which highlights the limited usefulness of
analysing DPI multiples for such a recent cohort of funds.
This also suggests VC investing requires patience as it
takes many years to develop a company before it can
be able to exit via a trade sale or IPO.
EXPLORING UK AND US VC RETURNS IN DETAIL
Combining the 2002-2006 and 2007-2011 vintage year
cohorts together shows UK VC fund performance is slightly
higher than the US over the full time period. The pooled
TVPI multiple for UK VC funds over the 2002-2011 vintage
year cohort was 1.74 compared to 1.62 for US funds. The
UK also had a higher pooled DPI multiple of 1.20 compared
to 1.08 for VC funds in the US. This provides further evidence
that UK VC funds performed well during the decade.
TVPI multiples for this cohort are slightly more informative
than DPI multiples, but there is little difference between
pooled TVPI across the two geographies. UK VC funds with
a vintage year between 2012-2016 have a pooled TVPI
multiple of 1.49, compared to 1.52 in the US. There is also
little difference in the range of TVPI values reported by UK
funds and US funds, with the upper/lower quartiles being
very similar between the UK and US. This reflects the
limitations even TVPI has when analysing the returns of
funds this early in their life, as fund managers will often
value their portfolio company investments at close to cost
until another financing round is raised.
FIG 16
DPI (2012-2016 VINTAGE FUNDS) BY GEOGRAPHIC AREA  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
Lower Quartile
Upper Quartile
Median
Pooled
n=51
UK
US
n=279
DPI0.35
0.40
0.05
0.10
0.15
0.20
0.25
0.30
0.00
0.36
0.22
FIG 17
TVPI (2012-2016 VINTAGE FUNDS) BY GEOGRAPHIC AREA  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
Lower Quartile
Upper Quartile
Median
Pooled
n=51
UK
US
n=279
TVPI1.60
1.80
0.20
0.40
0.60
0.80
1.20
1.00
1.40
0.00
1.49
1.52
FIG 18
US-UK DPI COMPARISON (2-YEAR VINTAGE COHORTS)  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
UK Pooled
UK Median
US Pooled
US Median
2002-2003
2004-2005
2006-2007
2008-2009
2010-2011
2012-2013
2014-2015
2016-2017
DPI2.00
2.50
1.00
0.50
1.50
0.00
FIG 19
US-UK TVPI COMPARISON TVPI (2-YEAR VINTAGE COHORTS)  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
UK Pooled
UK Median
US Pooled
US Median
2002-2003
2004-2005
2006-2007
2008-2009
2010-2011
2012-2013
2014-2015
2016-2017
TVPI2.00
2.50
3.00
1.00
0.50
1.50
0.00
Figures 18 and 19 compare VC returns in the UK and
US over 2002-2017, but segmented into two-year
vintage cohorts. Although the number of funds in each
UK vintage year cohort is relatively small, this analysis
is consistent with the above findings. UK VC funds
outperformed their US counterparts during the early
2000’s, but for more recent vintages US funds have
slightly higher pooled TVPI multiples than UK funds.
30 BRITISH BUSINESS BANK
31
ANALYSIS OF UK VC FINANCIAL RETURNS
Overall the analysis demonstrates that for funds with a
2002-2016 vintage, performance of UK VC funds is
comparable to the performance of US VC funds. The pooled
TVPI multiples of UK VC funds drops below the level of US
VC funds for funds with a 2008 vintage onwards, after
exceeding their US counterparts by a considerable
margin for earlier vintages.
The pooled DPI multiple of UK funds is ahead of US funds
up to 2006-07, before declining in 2008-09 to below the
US. From 2012-2013, the performance gap between the
US and UK narrows and the UK then subsequently tracks
the performance of US funds closely.
The relatively close performance between UK and US funds
in reported median DPI and TVPI multiples over time may
provide support for LPs to consider investing in the UK VC
market. The median DPI of UK funds compares favourably
to the equivalent US figure for many of the vintage year
cohorts. UK median VC fund TVPI is much closer to the US
median than the pooled TVPI multiples, with the UK median
figure tracking closely the US figures from 2008-09 onwards.
These findings suggest that the performance of most UK
and US VC fund is very similar, but the higher pooled market
returns reported for US VC funds is caused by the performance
of top outlier funds. This conclusion is confirmed in Figure
20 which shows the distribution of fund TVPI returns for
UK and the US funds with a 2002 to 2016 vintage. Whilst
the shape of the distribution is almost identical between
the two countries for 92% of funds, US funds in the top
8 percentiles have higher TVPI multiples than the
comparable UK VC funds.
The major difference therefore lies in the achieved
multiples of these top performing funds. For instance,
the top US VC fund in the sample achieves a TVPI of 13.8,
whilst the highest UK fund TVPI is 5.7.
Taken together, the findings presented in this report
suggest UK VC could be an attractive option for both LP
investors already investing in US VC and unable to access
more allocation within the top US funds and those LPs not
currently invested in VC and considering both the US and
UK. A key challenge for the UK VC market is therefore to
increase the performance these outlier funds which return
over 5 times their committed capital and help contribute
to the overall pooled market return figures.
FIG 20
RANKED TVPI DISTRIBUTION OF UK AND US VC FUNDS 
(2002-2016 VINTAGE YEARS)
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
TVPI14.00
16.00
4.00
6.00
8.00
2.00
10.00
12.00
0.00
UK
US
Max
UQ
Median
LQ
Min
32 BRITISH BUSINESS BANK
33
ANALYSIS OF UK VC FINANCIAL RETURNS
for funds of the same vintage. However, the lower realised
returns may reflect the earlier stage nature of the funds
relative to the overall market leading to portfolio company
exits taking longer to materialise.
VC funds within the ECF programme have a pooled TVPI
multiple of 1.41, equating to 1.78 for other LPs. Other LPs
in the ECF programme are therefore have the potential to
make higher returns than the wider market (1.63 for the
same vintage years), showing that the British Business
Bank prioritised return mechanism is working as intended.
This higher level of performance could make the ECF
programme an attractive asset class for LP investors
wishing to invest in UK VC.
Figure 22 shows for the VC funds BPC has invested in
between 2013-2016, the pooled DPI multiple generated
to date is 0.18.61 This is identical to the wider UK VC
market pooled DPI for funds of the same vintage, which
suggests the programme is performing as expected in terms
of making a commercial return. It should be noted that it is
early stage in the life of the programme, and performance
is based on just 7 BPC supported funds, so these figures
are likely to be highly volatile. It is also important to
acknowledge that there are large variations in the
performance of individual funds within this overall figure.
Although the BPC pooled TVPI multiples of 1.29 is slightly
lower than the UK market benchmark (1.40) for funds of
the same vintage, the BPC median fund TVPI performance
is 1.21. This is higher than the equivalent UK market
multiple figure of 1.18. It is too early in the life of BPC to
draw strong conclusions about future performance as most
BPC invested VC funds are too young to be included in the
analysis and most of the portfolio is currently unrealised,
but the outlook for future performance looks promising.
SECTION 6:
BENCHMARKING BBB
AND BPC VC FUND
PERFORMANCE TO
THE WIDER MARKET
This section provides an overview of performance of VC
funds the British Business Bank has invested in as an LP.
These numbers may differ from the figures reported in the
British Business Bank and BPC annual reports due to
differences in coverage of funds.56 For instance, the BPC
Annual Report shows the BPC portfolio had a TVPI multiple
of 1.15 overall as at end of March 2019.
The British Business Bank has analysed the performance57
of the Enterprise Capital Fund (ECF) programme, which was
established in 2006 to increase the amount of equity finance
available to high growth innovate SMEs affected by the
equity gap.58 Since inception the ECF programme has invested
in 29 funds with a total of £1.3bn capital committed
(including third party capital), making the programme an
important part of the UK VC industry. The ECF programme
has helped 16 fund managers to raise their first institutional
fund, and so far, 63% of these have already gone on to
raise a further fund.59
The ECF programme is designed to address identified market
failures leading to an equity gap by facilitating the
establishment of VC funds targeting high growth potential
companies seeking smaller amounts of equity finance.
A key feature of the ECF programme is the ‘geared’ return
structure designed to increase returns for private investors
so that they are competitive with other market investment
opportunities. The British Business Bank receives a 3%
prioritised return but, after repayment of capital, the Bank
receives a lower share of the profit compared to the other
private investors in the fund. In the event of good performance
by the fund manager, private investors receive a greater
share of the profits.
The overall pooled DPI multiple for VC funds60 invested in
through the ECF programme between 2006 and 2016 is
0.47, equating to a pooled DPI of 0.50 for other LPs. This
is lower than the wider UK VC market pooled DPI of 0.77
FIG 21
ECF VC FUND RETURNS (2006-2016 VINTAGES)  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
Pooled DPI
ECF Overall
ECF LP Returns
Overall UK VC
Median DPI
Pooled TVPI
Median TVPI
Multiple1.60
1.80
2.00
0.80
0.60
1.00
0.40
0.20
1.40
1.20
0.00
FIG 22
BPC VC FUND RETURNS (2013-2016 VINTAGES)  
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
Pooled DPI
BPC
Overall UK VC
Median DPI
Pooled TVPI
Median TVPI
Multiple1.60
0.80
0.60
1.00
0.40
0.20
1.40
1.20
0.00
34 BRITISH BUSINESS BANK
35
ANALYSIS OF UK VC FINANCIAL RETURNS
The ‘equity gap’ for smaller unquoted companies was first
identified by the Macmillan Report in 1931 and provides the
rationale for the British Business Bank’s activities today.
Early stage equity investment in the UK has continued to
suffer in the intervening years both from periods of actual
poor investment returns and perceived poor investment
returns. This is exacerbated by limited and opaque publicly
available data on the performance of VC funds.
However, the UK VC industry has transformed over
the last decade as talent, networks, and exit routes have
strengthened. These historical perceptions of poor
investment performance are increasingly out of date.
The British Business Bank was founded in 2014 to make
finance markets for smaller firms work better. Through
our commitments in equity fund managers, the Bank is
an active investor supporting companies commercialising
new technology emerging from UK universities and
research laboratories. The Bank believes that catalysing,
documenting and publicising strong, proven investment
returns for the VC asset class makes the market work
better in two ways:
First, the Bank is itself a large institutional investor into
UK VC, primarily on a commercial basis. We seek returns
on our investment in order to meet our own return targets,
but also to satisfy our policy goal of encouraging private
investment into the asset class. In the long run, there must
be a strong business case based on both actual and expected
investment returns to sustainably attract additional private
institutional capital. Therefore, our investments seek to
prove that such financial returns can be made, enriching
both the Exchequer and the wider UK innovation ecosystem
by attracting more capital.
Second, regular publication of more transparent and reliable
performance data helps suppliers of investment capital to
make asset allocation decisions with greater confidence.
Such information can also encourage more scientific and
investment talent to migrate to the UK VC sector, creating
a positive reinforcement cycle. Our recent ’Future of defined
contributions pensions’ report62 stated ‘The British Business
Bank will continue to take the lead in improving the quality
and availability of UK industry-level data on historic returns,
increasing the broader transparency of the asset class’.
The Bank therefore intends for this report to be the first
of an ongoing series and become a trusted data source
for the UK VC market.
Going forward, we intend to work with the wider VC
industry to improve data coverage and accuracy. Comments
and suggestions from all corners are most welcome.
The evidence shows that the absolute returns based on
money multiples produced by the UK VC sector since 2002
have been strong. Pooled TVPI multiples have been above
1 throughout the relevant period of analysis, set against
an investment environment of low interest rates. These
market returns have been made through exposure to early
stage companies and investments in software and other
forms of emerging technology where the UK’s science
and technical base is internationally competitive.
In fact, the UK VC sector is competitive against its more
developed counterpart in the US. UK VC returns are neither
considerably nor consistently below those found in the US;
rather, UK VC funds with a 2002-2006 vintage outperformed
US VC funds of the same vintage. From 2007 onwards, the
financial performance of UK VC funds has been comparable
to the US with UK performance only slightly lower than
US funds of the same vintage.
UK VC funds share a similar distribution of fund TVPI
performance compared to their much more numerous US
peers, except for a handful of top American VC funds that
greatly outperform. Moreover, whilst 17 US VC funds in the
2002-2016 vintage cohort have a TVPI multiple greater
than 5 compared to just 2 in the UK, this number comprises
of just 2.1% of US VC funds, the exact same percentage as
the UK. The major difference lies in the achieved multiples
of these top performers, with the highest performing US
funds generating TVPI multiples in excess of 10, but the
highest UK fund TVPI is 5.7. This finding suggests UK VC
could be an attractive option for both LP investors already
investing in US VC and unable to access more allocation
within the top US funds and those LPs not currently
invested in VC and considering both the US and UK.
The UK VC market has substantially less capital available
than in than the US, even after accounting for differences
in size of the two economies. The Bank’s 2019 Equity Tracker
report63 shows the US VC market was 1.7 times larger than
the UK between 2016 and 2018, despite the UK market being
ahead of the US in terms of GDP-weighted deal numbers.
This suggests UK companies are currently unable to raise
the same levels of capital as there US counterparts, which
may restrict company growth. This is evidenced by UK
companies seeking larger rounds of equity finance being
reliant on overseas investors64 to provide this capital, which
could be a result of UK VC fund size lagging behind US VC
funds.65 UK VC-backed companies are also less likely to
use venture debt than their US counterparts.66 The
conclusion is that there is scope for increased additional
capital into the UK VC market without the risk of
over-saturation.
Greater transparency around the potential returns
available from investing in UK VC could help unlock more
institutional investment in the asset class, which could
allow UK VC funds to increase in scale and better meet
the funding needs of UK high-growth companies as they
scale up.
SECTION 7:
CONCLUSIONS
36 BRITISH BUSINESS BANK
37
ANALYSIS OF UK VC FINANCIAL RETURNS
4. Largest fund. This is to ensure subsequent
fund-raising closures are captured
5. Oldest Vintage
• This gave a total combined dataset of 1,146
unique VC funds with a 2002-2017 vintage year
(Table A3) which was used for the financial returns
analysis across different geographies in Section 4
and 5.
• To increase coverage of funds, the individual funds
from PitchBook, Preqin and BBB were all merged into
one single data set. To avoid the same fund appearing
more than once, funds were de-duplicated using the
following sequential preference logic:68
1. British Business Bank supported fund.
This information has been verified/ audited.
2. Most up to date reporting date. This to ensure
the latest information is captured.
3. Lowest TVPI Multiple. This is to ensure most
conservative data source is chosen.
• Data on individual VC and Growth Capital funds based
in Europe and the United States with a 2002 to 2018
vintage year was downloaded from PitchBook and Preqin
between 26 July and 1 August 2019. 2002 was chosen
as the first vintage year to avoid picking up effects from
the dot-com bubble and also to be consistent with
BVCA reporting. Fund data was downloaded in US
dollars to be consistent throughout.
• Data from British Business Bank MI systems was also
extracted for funds under the ECF, UKIIF and British
Patient Capital (including VC Catalyst) programmes
as these programmes are delivered by private sector
fund managers that have raised funding from private
sector sources. The closed fund size was converted
from Pound Sterling to US dollars using the relevant
£/$ Exchange. This gave a total dataset of 2,764 US
and European VC and Growth Capital funds (Table A1).
• Funds with missing data relating to fund size, PIC,
TVPI and DPI were removed from the underlying
dataset as it was not possible to calculate market
return figures. For instance, the reported PIC,
TVPI and DPI multiples were used to calculate the
commitment drawn, realised value and unrealised
values in relation to the reported fund size for the
pooled financial return metrics.67 The individual
reported fund TVPI and DPI multiples were used to
calculate the median, quartile and decile returns figures.
• The PitchBook and Preqin data was then cleaned to
remove ‘old’ fund data, which might relate to funds
strategically reporting returns, for instance by taking
advantage of initial early returns. For funds with a
vintage year between 2002-2010, funds with the
latest reporting date less than seven years since fund
inception was excluded. For funds with a vintage year
of 2011 onwards, a reporting date of at least 2017
was required.
• The data was then visually checked for errors with a
focus on the largest reported TVPI and DPI multiples,
but it was not possible or feasible to check the accuracy
of reported information for every fund.
• Funds were assessed to ensure only VC funds were
captured. This sometimes involves reclassifying funds
from their PitchBook and Preqin fund classification.
All growth capital and buyout funds were removed
from the dataset. In addition, VC funds which entirely
invested in geographic areas and developing countries
outside of their listed location was also removed from
the dataset.
• This gave a total dataset of 1,664 VC funds with a
2002-2017 vintage (Table A2). Financial returns figures
may therefore differ to the numbers published by
PitchBook and Preqin themselves which include all VC
funds in their relevant fund populations. 2018 fund
vintage was removed from the full A1 dataset due to
insufficient time for fund performance to be assessed.
APPENDIX:
METHODOLOGY
TABLE A1
NUMBER OF VC AND GROWTH CAPITAL FUNDS 2002 – 2018 BY GEOGRAPHY AND DATA SOURCE (RAW DOWNLOADED NUMBERS)

BBB
PitchBook
Preqin
Total

UK
68
139
83
290
Rest of Europe
3
141
208
352
US

1,159
963
2,122
Total
71
1,439
1,254
2,764
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
TABLE A2
NUMBER OF VC FUNDS 2002 – 2017 BY GEOGRAPHY AND DATA SOURCE (CLEANED)

BBB
PitchBook
Preqin
Total

UK
47
58
54
159
Rest of Europe
3
54
128
185
US

627
693
1,320
Total
50
739
875
1,664
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
TABLE A3
NUMBER OF VC FUNDS 2002 – 2017 BY GEOGRAPHY AND DATA SOURCE (CLEANED AND DE-DUPLICATED)

BBB
PitchBook
Preqin
Total

UK
45
36
29
110
Rest of Europe
3
32
114
149
US

430
457
887
Total
48
498
600
1,146
Source: British Business Bank analysis of PitchBook, Preqin and BBB MI data
38 BRITISH BUSINESS BANK
39
ANALYSIS OF UK VC FINANCIAL RETURNS
1. Only LP funds which are classified as VC are included within this assessment.
Growth Capital funds are not included within the British Business Bank and BPC
figures to ensure an accurate and fair comparison to the wider VC market. To protect
the commercial interests of the VC funds that the Bank has invested in, the Bank is
not able to disclose the individual performance data of funds it has invested in.
2. BIS (2012) ‘SME access to external finance’ states ‘It is widely recognised that an
‘equity gap’ exists in the provision of modest amounts of equity finance to SMEs.
This is also due to asymmetric information between the investor and the business
on the likely viability and profitability of the business.’
3. British Business Bank (2019) ’Future of Defined contributions pensions: Enabling
access to Venture Capital and Growth Equity’ https://www.british-business-bank.
co.uk/wp-content/uploads/2019/09/Oliver-Wyman-British-Business-Bank-The-
Future-of-Defined-Contribution-Pensions.pdf
4. VC Adventure (2014) ‘Venture outcomes are even more skewed than you think’
https://www.sethlevine.com/archives/2014/08/venture-outcomes-are-even-
more-skewed-than-you-think.html
5. DealBook (2014) ‘In WhatsApp Deal, Sequoia Capital may make 50 times its money’
https://dealbook.nytimes.com/2014/02/20/in-whatsapp-deal-sequoia-capital-
may-make-50-times-its-money/
6. Nexit Ventures (2018) ‘Why VCs seek 10x returns’ https://www.nexitventures.com/
blog/vcs-seek-10x-returns/
7. Top Tier (2017) ‘The 80/20 Rule in Venture’ http://blog.ttcp.com/8020-rule-
venture/
8. Kaplan, S and Lerner, J. (2016) ‘Venture Capital Data: Opportunities and Challenges’
https://www.hbs.edu/faculty/Publication%20Files/17-012_10de1f93-30e4-4a98-
858c-4137556ec037.pdf
9. Wealthfront (2014) ‘Demystifying Venture Capital Economics, Part 1’ https://blog.
wealthfront.com/venture-capital-economics/
10. Although secondary sales are possible, these usually occur at large discounts to the
current valuation.
11. British Business Bank (2019) ‘Small Business Equity Tracker 2019’ https://www.
british-business-bank.co.uk/wp-content/uploads/2017/07/239-Small-Business-
Equity-Tracker-Report_2017WEB.pdf.
12. INSEAD (2011) ‘Value and Return Measurement in Private Equity: An Overview’
https://www.criticaleye.com/inspiring/insights-servfile.cfm?id=2842
13. Mattermark (2016) ‘Everything You’ve Ever Wanted to Know About VC Returns
(But Were Afraid to Ask’ https://mattermark.com/about-venture-capital-returns-
valuations/
14. There are several different methodologies used by VC firms to calculate the value of
a company, including last round valuation, comparison with comparable companies
and more recently the Option Pricing Model. All of which can result in different
valuations of the same company.
15. Kaplan, S and Lerner, J. (2016) ‘Venture Capital Data: Opportunities and Challenges’
https://www.hbs.edu/faculty/Publication%20Files/17-012_10de1f93-30e4-4a98-
858c-4137556ec037.pdf
16. Mattermark (2016) ‘Everything You’ve Ever Wanted to Know About VC Returns
(But Were Afraid to Ask) https://mattermark.com/about-venture-capital-returns-
valuations/
17. McKinsey and Company (2004) ‘Internal rate of return: A cautionary tale’ https://
www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-
insights/internal-rate-of-return-a-cautionary-tale
ENDNOTES
18. Invest Europe (2018) ‘Professional Standards Handbook’ https://www.investeurope.
eu/media/710939/IE_Professional-Standards-Handbook-2018.pdf
19. A £100 return at the beginning is treated the same as £100 return at the end of the
fund’s life.
20. Fair Value is defined by US and International accounting standards as ‘the price
that would be received to sell an asset or paid to transfer a liability in an Orderly
Transaction between Market Participants at the Measurement Date.’ As quoted page
7 of International Private Equity and Venture Capital Valuation (2015) http://www.
privateequityvaluation.com/download/i/mark_dl/u/4012990401/4632604968/
IPEV%20Valuation%20Guidelines%20December%202015%20-%20
updated%20for%20terms.pdf
21. Medium (2016) ‘Why your investor might pass on your next fund: An LP’s
perspective on benchmarking in Venture Capital’ https://medium.com/sapphire-
ventures-perspectives/why-your-investor-might-pass-on-your-next-fund-
884dfc34f8d0
22. For examples, see the CB Insights Downround tracker: https://www.cbinsights.com/
research-downround-tracker
23. Ang and Sorensen (2012) ‘Risks, returns and optimal holdings of private equity: A
survey of existing approaches’ https://papers.ssrn.com/sol3/papers.cfm?abstract_
id=2119849
24. The Venture Company (2013) ‘How Top-Quartile runs out of merit’ https://www.
venturecompany.com/blog/2013/03/how-top-quartile-runs-out-of-merit/
25. https://www.bvca.co.uk/
26. BVCA (2018) ‘Performance Measurement Survey 2017’ https://www.bvca.co.uk/
Portals/0/Documents/Research/Industry%20Performance/BVCA-Perfomance-
Measurement-Survey-2017.pdf
27. Kaplan, S and Lerner, J (2016) ‘Venture Capital Data: Opportunities and Challenges’
http://www.nber.org/papers/w22500
28. https://www.cambridgeassociates.com/who-we-serve/endowments-foundations/
29. British Business Bank analysis of PitchBook.
30. https://www.britishpatientcapital.co.uk/portfolio/
31. European Investment Fund (2017) ‘European Investment Fund Venture
Capital Portfolio Performance – EIF own resources Vintage and Team
Location: As at 30/06/17’_https://ftalphaville-cdn.ft.com/wp-content/
uploads/2017/12/21152533/EIF-Own-Resources_VC-Performance-Data-by-
Vintage-and-Team-Location-as-at....pdf
32. https://www.crunchbase.com/
33. https://dealroom.co/
34. https://www.beauhurst.com/
35. BVCA (2018) ‘Performance Measurement Survey (PMS) 2017’ https://www.
bvca.co.uk/Portals/0/Documents/Research/Industry%20Performance/BVCA-
Perfomance-Measurement-Survey-2017.pdf
36. Excluding British Business Bank invested funds.
37. The VC Catalyst programme started investing in funds in 2013.
38. The reported returns for the British Business Bank in Figure 1 and 2 relate to
overall fund returns for the ECF funds and do not take into account the geared
returns position for private investors. In practice, LPs will achieve higher returns
if funds perform well.
39. PitchBook and Preqin’s databases are continuously being updated.
Since undertaking the analysis in August, the author is aware of data
being corrected for one of the funds.
Legal Notices
British Business Bank plc is a public limited company registered in England and Wales registration number 08616013, registered office
at Steel City House, West Street, Sheffield, S1 2GQ. As the holding company of the group operating under the trading name of British
Business Bank, it is a development bank wholly owned by HM Government which is not authorised or regulated by the Prudential
Regulation Authority (PRA) or the Financial Conduct Authority (FCA). It operates under its own trading name through a number of
subsidiaries, one of these, Capital for Enterprise Fund Managers Limited, is authorised and regulated by the FCA (FRN 496977).
British Business Bank plc and its subsidiary entities are not banking institutions and do not operate as such. A complete legal
structure chart for British Business Bank plc and its subsidiaries can be found at www.british-business-bank.co.uk.
The British Business Bank has made every effort to use reliable, up to date and comprehensive information and analysis, but no
representation, express or implied, is made by British Business Bank plc and its subsidiaries as to the completeness or accuracy of
any facts or opinions contained in this report. Recipients should seek their own independent legal, financial, tax, accounting or
regulatory advice before making any decision based on the information contained herein. This report is not investment advice.
The British Business Bank accepts no liability for any loss arising from any action taken or refrained from as a result of information
contained in this report.
This analysis and report was written by Dan van der Schans
and Joel Connolly in the British Business Bank Economics
Team. We would like to thank David Woods in British Patient
Capital for his assistance in reviewing and classifying the
fund level data.
We are grateful to PitchBook and Preqin for allowing
us the use of their data.
ACKNOWLEDGEMENTS
40. These numbers will differ to the ones PitchBook and Preqin report themselves due
to the additional data cleaning that the British Business Bank has undertaken, e.g.
by removing ‘old’ fund data.
41. Cambridge Associates (2019) ‘US Venture Capital Index and Selected Benchmark
Statistics’ March 31, 2019 https://www.cambridgeassociates.com/private-
investment-benchmarks/
42. It is not possible to compare the European returns figures to Cambridge Associates
or other data providers. Cambridge Associates does not publish data on the
European VC market as it is included within other markets.
43. https://www.calpers.ca.gov/page/investments/asset-classes/private-equity/
pep-fund-performance
44. Analysis of PitchBook confirms that the coverage of returns data for the Rest of
Europe is lower than for the UK and US
45. This decline in coverage of US VC funds is also seen in the PitchBook data.
46. Kauffman report identifies several named fund managers that have previously
declared they would not accept public capital investors into their funds to avoid
publicly disclosing information on performance under FOI legislation. Kauffman
Foundation (2012) ‘”We have met the enemy… and he is us” Lessons from Twenty
Years of the Kauffman Foundation’s Investments in Venture Capital Funds and The
Triumph of Hope over Experience’ https://angel.co/pdf/kauffman-foundation-
venture-capital.pdf
47. Ramos-Lynch (2018) ‘A Super Fast Overview and History of Tech VC’https://blog.
usejournal.com/a-super-fast-overview-and-history-of-tech-vc-714ae54ec72
48. Gompers (1994) ‘The rise and fall of Venture Capital’ https://thebhc.org/sites/
default/files/beh/BEHprint/v023n2/p0001-p0026.pdf
49. Preqin also captures the financial returns for European VC funds within these
vintage years, but the number of funds captured per year is relatively small (less
than 10) until 1997.
50. British Business Bank (2019) ‘Small Business Equity Tracker’
51. TechCrunch (2017) ‘The Meeting that showed me the truth about VCs’ https://
techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-
vcs/?renderMode=ie11
52. Medium (2016) ‘Why your investor might pass on your next fund: An Lp’s
perspective on benchmarking in Venture Capital’ https://medium.com/sapphire-
ventures-perspectives/why-your-investor-might-pass-on-your-next-fund-
884dfc34f8d0
53. Capital Dynamics (2009) ‘The PE J-curve: cash flow considerations from primary and
secondary points of view’ https://www.capdyn.com/Customer-Content/www/news/
PDFs/the-private-equity-j-curve_private-equity-mathematics_apr-09__2_.pdf
54. The US economy went into recession in December 2007 with the bursting of
the subprime mortgage bubble. UK GDP growth turned negative in Q2 2008 and
remained negative for 5 quarters before beginning to recover in 2010.
55. https://www.businessinsider.com/wework-ipo-timeline-delayed-ceo-adam-
neumann-scandals-explained-2019-9?r=US&IR=T#september-17-wework-bonds-
fell-at-a-record-pace-after-the-company-delayed-its-plan-to-go-public-18
56. The financial returns information covers fund performance as of end of March 2019
in line with the figures contained in the BPC Annual Report. However, the figures
differ in terms of fund coverage. Only the performance of LP funds classified as VC
are included within the British Business Bank and BPC figures within this report.
Growth Capital funds and listed vehicles are excluded to ensure an accurate comparison
with the wider VC market. Furthermore, performance is assessed for the fund, not
just the returns received by the British Business Bank. A fund vintage of up to 2016
was chosen to ensure a meaningful comparison of market performance, as it is too
soon to assess the performance of more recent vintage funds.
57. To protect the commercial interests of the VC funds that the Bank has invested in,
the Bank is not able to disclose the individual performance data of any of the funds
that it has invested in.
58. BIS (2009) ‘The supply of equity finance to SMEs: Revisiting the “Equity Gap” http://
www.sqw.co.uk/files/8713/8712/1030/47.pdf
59. https://www.british-business-bank.co.uk/wp-content/uploads/2019/05/BBB_ECF_
Investor_Workshop_Slide_Pack_May_2019_Final.pdf
60. This covers LP funds classified as VC only. Growth capital funds are excluded from
these returns figures.
61. This includes funds invested in as part of the VC Catalyst programme.
62. British Business Bank (2019) ’Future of defined contributions pensions: Enabling
access to Venture Capital and Growth Equity’ https://www.british-business-bank.
co.uk/wp-content/uploads/2019/09/Oliver-Wyman-British-Business-Bank-The-
Future-of-Defined-Contribution-Pensions.pdf
63. British Business Bank (2019) ‘Small Business Equity Tracker’ https://www.british-
business-bank.co.uk/wp-content/uploads/2019/06/Small-Business-Equity-
Tracker-2019.pdf
64. British Business Bank analysis of Beauhurst show 69% of all equity deals above
£10m between 2016-2018 involved an overseas equity investor.
65. British Business Bank analysis of PitchBook shows the average US VC fund was
£160m in size compared to £123m (2016-2018 vintage, excluding funds less
than £10m).
66. British Business Bank analysis of Preqin shows 10% of UK VC-backed companies
received venture debt between 2016 and October 2019, compared to 15% of US
VC-backed companies.
67. A pooled approach takes into account larger funds have a larger impact on the
overall market financial returns.
68. This was undertaken by specific fund name and also visually to take into account
variations of the same fund name. E.g. use of Roman numerals and numbers,
differences in plural e.g. partner and partners. In some instances, abbreviations
are used, e.g. SEP instead of Scottish Equity Partners and where possible these
are taken into account.
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