UK venture capital funds have cheered a sharp rise in their financial returns this year, according to a new report from the British Business Bank.
According to the bank’s latest report, UK VC funds with a 2008 to 2013 vintage have seen an increase in their pooled Distributions to Paid In Capital (DPI – a measure of the capital returned to investors) multiples from 0.79 in 2020 to 1.05 in 2021.
The report, titled UK Venture Capital Financial Returns 2021, also found that over the same time period, the pooled Total Value to Paid In Capital (TVPI – a measure of accounting values of ongoing investments) multiple of UK VC funds increased by 0.28 points, from 1.81 to 2.09 in 2021.
Looking ahead, fund managers have positive views on VC market conditions, according to the bank’s fund manager survey. Nearly all surveyed fund managers reported positive views on the quality of investments available (97%) and current exit conditions (93%), with the majority (59% and 72% respectively) reporting an improvement on these measures over the past year.
However, a majority of fund managers (59%) reported high levels of competition for deals, which may suggest these high valuations might not be sustained.
The bank also said that while US VC financial returns were historically considered by many in the VC industry to be substantially higher than the returns of UK and European funds, analysis of data in the report suggests that this is not the case, and returns have been similar since 2002.
Matt Adey, director of economics at the British Business Bank, said: “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. It’s encouraging that fund managers are overwhelmingly positive about market conditions with a sharp increase in performance in the last year.”
UK Venture Capital Financial Returns 2021 is the British Business Bank’s third annual report examining the financial performance of UK VC funds. The report covers 154 UK VC funds with a 2002-19 vintage and draws on data from both the British Business Bank and commercial data providers including PitchBook and Preqin, as well as a survey of UK VC fund managers.
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