UK VC fund performance ‘increased sharply’ over past year

The performance of UK venture capital (VC) funds has increased sharply over the last 12 months, according to research by the government-backed British Business Bank.

The Bank said VC returns were driven by higher company valuations combined with strong exit activity in 2020 and 2021.

Nearly all - 97 per cent - of the fund managers surveyed reported positive views on the quality of UK VC investments available.

A huge majority - 93 per cent - were favourable about current exit conditions, with the majority, 59 per cent and 72 per cent for 2020 and 2021 respectively, reporting an improvement on conditions over the last year.

However, a high proportion of fund managers - 59 per cent - reported high levels of competition for VC deals, which the Bank said may suggest these high valuations might not be sustained until exit.

In addition, the Bank said its analysis of the data in its report suggested that UK VC funds have provided similar returns to US VC funds since 2002.

The Bank said UK VC funds performed particularly well across the 2002-2007 post-dotcom bubble vintage years, where UK funds' pooled Distributions to Paid In Capital (DPI) and Total Value to Paid In Capital (TVPI) returns are, respectively, 0.20 points and 0.35 points higher than in the US.

“This report provides as comprehensive a view as possible of the performance of the UK venture capital market,” Matt Adey, director of economics at the British Business Bank. “The report shows that UK VC continues to have good performance relative to the US and has the potential to be an attractive asset class for LPs.”

He added: “It’s encouraging that fund managers are overwhelmingly positive about market conditions with a sharp increase in performance in the last year.”

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