BENCHMARKING & FUND PERFORMANCE. PitchBook. 1Q 2013 Global PE & VC. Report REPORT HIGHLIGHTS:

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1 PitchBook Sponsored by: PitchBook 1Q 2013 Global PE & VC BENCHMARKING & FUND PERFORMANCE Report REPORT HIGHLIGHTS: Page 3 - New NAV Index for comparing returns against public equities Page 5 - Global fund IRR quartiles Page 16 - Global fund IRR and TVPI benchmarks by vintage

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3 Table of Contents Introduction The NAV Index Average IRRs IRR Quartile Performance Private Equity IRRs Fund Return Multiples Fund Cashflows U.S. vs. European Performance League Tables Venture Capital IRRs Fund Return Multiples Fund Cashflows League Tables Benchmarks by Fund Type and Vintage Methodology COPYRIGHT 2013 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment. 1

4 Introduction One of the most difficult tasks for general partners (GPs) and limited partners (LPs) alike is gauging the relative performance of their private equity (PE) and venture capital (VC) investments. With the irregular nature of cashflows, relative illiquidity of the asset classes, and varied fee structures, finding a way to benchmark performance against public equities and other investment strategies is no easy task. PitchBook s Quarterly Benchmarking Report strives to provide a better picture of performance by offering information both metrically and visually in order to examine the global fund return landscape from a variety of angles. The report includes both average and horizon internal rate of return (IRR) measurements, but despite the fact that IRR has been the standard performance measure for PE and VC for decades, its shortcomings and pitfalls are well-documented. To that end, we have also included various charts with fund return multiples and cashflows that are net of fees, allowing investors to clearly see the real cash-on-cash return of PE and VC investments. PitchBook has also developed a new NAV (net asset value) Index, which looks at the quarterly change in NAV at the fund level for the PE and VC asset classes, while taking into account quarterly fund contributions and distributions. Considering the various challenges in benchmarking PE and VC performance mentioned above, no index for the two industries can be perfect. However, the NAV Index provides a viable way to observe the long-term trends of the PE and VC asset classes and compare performance against public indices. We hope the information contained in this report proves both useful and insightful, and acts as a starting point in your efforts to benchmark the performance of the PE and VC asset classes. In addition to the report, PitchBook has produced a complementary slide deck that features the charts and graphs from the report and can be utilized for conferences, board meetings, and other PE and VC presentations. PitchBook currently tracks more than 17,000 funds around the world. The Quarterly Benchmarking Report includes performance data from more than 3,000 global vehicles, as reported by LPs through 2Q RR Donnelley is a global provider of integrated communications. The company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, drive top-line growth, enhance ROI and ensure compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four continents, the company employs a suite of leading Internet based capabilities and other resources to provide pre-media, printing, logistics and business process outsourcing services to clients in virtually every private and public sector. Our Corporate Responsibility Report is available at Venue is a secure online workspace with a powerful feature-set and an intuitive design that allows you to easily organize, manage, share and track all of your sensitive information. Venue data rooms provide complete control, ensuring that you can manage who has access to your data room, which documents they see, and how they can interact with those documents. Venue data rooms are backed by RR Donnelley, a $10.6 billion corporation with more than 500 locations and nearly 60,000 employees worldwide. RR Donnelley s total revenues are larger than all other virtual data room providers combined. Whether you re conducting due diligence for a merger, raising capital, or developing a document repository, Venue is the ideal virtual workspace for managing critical information. 2

5 The NAV Index The NAV Index for Global PE & VC vs. S&P Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q PE VC S&P 500 The purpose of PitchBook s newly designed NAV Index is to provide a barometer for the long-term performance of PE and VC against other asset classes. For this report, we based the index to 100 at the beginning of As this was the height of the tech bubble, both the S&P 500 and the VC asset class experience substantial downturns at the beginning of the chart. The VC industry was able to stabilize after a couple of years, but as can be seen, it has yet to experience a full recovery and has displayed mediocre performance for about a decade. A different story emerges when looking at PE, which eschewed the tech bubble and had strong returns through the first half of the decade. The more recent financial crisis did cause a slight hiccup in the industry s performance, but gains have been steady since the beginning of NAV Index Methodology PitchBook created the NAV Index as a way of tracking quarter-to-quarter changes in the aggregate NAV for all PE and VC funds. The NAV Index looks at the quarterly percentage change in NAV for each fund tracked by PitchBook, while taking into account contributions and distributions during the quarter by using the following calculation: Quarterly Percentage Change = [(NAV at end of quarter + distributions during the quarter contributions during the quarter) / NAV at the beginning of the quarter]-1 Once the Quarterly Percentage Change has been calculated for each fund, a median is taken for all funds from each quarter represented in the chart. The Index calculation begins with a starting value of 100 and applies the median Quarterly Percentage Change for each subsequent quarter in the chart. For the purposes of this graph, we based the Index to 100 at the beginning of 2001, but the NAV Index can be rebased to show performance from any point in time. PitchBook only uses funds that are 3 to 12 years old in order to control the impact of the J-curve effect at the beginning of the fund, as well as funds that have become largely inactive in their later years. While we are only showing a few broad categories in this report, PitchBook s NAV Index can be customized to drill down into specific fund types, fund sizes, vintages, and other variables. To have the NAV Index customized to your specific parameters, please contact us at research@pitchbook.com. 3

6 Average IRRs 25% Global Average IRR by Vintage Year 2 15% 1 5% All PE Funds Buyout Funds VC Funds Mezzanine Funds Fund of Funds At first blush, the chart above may appear sporadic and not seem to offer much insight into fund performance. However, if you dig a little deeper, some interesting trends emerge. One is the steady decline in performance for virtually all types of funds raised in the years leading up to the financial crisis, as these vehicles were likely making investments when valuations were at or near their zenith. The ramifications of the crisis are also evident when looking at the 5-year horizon IRRs, which show fund performance for the 2Q 2007 to 2Q 2012 period. The exception has been mezzanine funds, which benefitted from tighter lending standards in the post-crisis era as investors had to turn to alternative sources of funding. This has led to higher quality loans from mezzanine funds, as the 2008 and 2009 vintage mezzanine funds are the strongest performers. Another interesting finding is that fund of funds consistently lag behind 16% 14% 12% 1 8% 6% 4% 2% 1-year 3-year 5-year 10-year All PE Funds Buyout Funds VC Funds Mezzanine Funds Fund of Funds the performance of general PE funds, which comes as a surprise considering that these vehicles devote all their time and energy to identifying the best fund managers to invest in. When looking at the average IRR chart, it is important to keep the J-curve Global Horizon IRRs effect in consideration. To that end, the weak performance from some of the more recent vintages should improve as the capital expenditures and operational enhancements at portfolio companies begin to bear fruit and investments are realized. 4

7 IRR Quartile Performance Global PE IRR Quartiles by Vintage Year Global VC IRR Quartiles by Vintage Year % 3 15% Top Quartile 25% 2 15% 1 5% -5% Top Quartile 3rd Quartile 2nd Quartile Bottom Quartile 1 5% -5% -1 3rd Quartile 2nd Quartile Bottom Quartile IRR 25th Percentile IRR Median IRR 75th Percentile IRR 25th Percentile IRR Median IRR 75th Percentile Choosing top flight GPs has become an increasingly important aspect of PE investing in recent years, as evidenced in the quartile chart above. Even bottom quartile investors in a 2001 vintage fund could enjoy an IRR of more than 1. Looking at the more recent 2006 vintage funds, a top quartile fund is only guaranteed an IRR of 8.4%, while a bottom quartile fund will likely be in negative territory. One of the most important takeaways when looking at the VC quartile chart is the wide disparity between the top and bottom quartile funds, underscoring the importance of choosing quality GPs to invest with. For any vintage year from 2001 to 2010, investors in the top quartile will enjoy an IRR of at least 5%. On the other hand, bottom quartile performers from all vintages are in the red. Global Debt Fund IRR Quartiles by Vintage Year Global Fund of Funds IRR Quartiles by Vintage Year 3 25% 18% 16% 14% Top Quartile 2 15% Top Quartile 12% 1 8% 3rd Quartile 1 3rd Quartile 6% 4% 5% 2nd Quartile Bottom Quartile IRR 25th Percentile IRR Median IRR 75th Percentile 2% -2% -4% 2nd Quartile Bottom Quartile IRR 25th Percentile IRR Median IRR 75th Percentile As the chart above shows, it takes a strong stomach to be a debt investor. Returns from debt funds have been incredibly inconsistent over the last decade, but there has been a definitive upswing in recent years. With traditional lenders continuing to tighten their standards, businesses of all stripes have been forced to look for alternative sources of financing, which has led to better performing loans from debt funds. Throughout the early and mid-2000s, there was little deviation between the top and bottom quartile performers in the fund of funds space. In the years since the financial crisis, however, there has been a divergence between the leaders and laggards. Much of this trend can be attributed to a decrease in the bottom quartile IRR hurdle rate, which was above 1 in 2001 but has dipped below 5% for each vintage since

8 Global PE IRRs As can be seen in the chart on the right, the pattern of performance for PE funds holds fairly consistent across the different fund size buckets. The exception is the smallest bucket, funds with less than $250 million in capital commitments. This is somewhat surprising considering that conventional wisdom in the PE space has been that smaller funds tend to perform better, the perception being that it is easier to double or triple the size of a $20-million business than it is a $500-million business. One reason why the under $250 million fund bucket may have subpar performance is that smaller deals tend to use less debt and more equity, which dampens returns. To that end, the best performance comes from funds in the $1 billion and larger size bucket for both the 3-year and 10-year horizon IRRs. Due to the havoc inflicted by the financial crisis, as can be seen in the depressed 5-year horizon IRR figures, one would expect the 10-year returns for PE to be relatively weak. But thanks 4 35% 3 25% 2 15% 1 5% -5% -1 18% 16% 14% 12% % 6% 4% 2% IRR 25th Percentile IRR Median IRR 75th Percentile 1-year 3-year 5-year 10-year All PE Funds Under $250M $250M-$1B $1B+ to strong performance at the beginning of the decade, the 10-year horizon IRRs are actually relatively strong. Performance has rebounded nicely in the years following the financial crisis as well. Interestingly, the 3-year and 10-year horizon IRRs are virtually the same for each PE fund size bucket. Lower returns are expected in the Global PE IRR Quartiles by Vintage Year Global PE Horizon IRRs by Fund Size Top Quartile 3rd Quartile 2nd Quartile Bottom Quartile first few years of a fund, when firms concentrate on making the necessary investments to improve their portfolio companies. However, as the quartile chart on the left reveals, performance for funds from the 2004 to 2007 vintages remains depressed despite the fact that these vehicles are now more than five years old. Particularly for the 2004 and 2005 vintage funds, which are now well into their investing lifecycle, it is unlikely that performance will improve to the point where these vehicles will have comparable returns with funds from the 2001 to 2003 vintages. There is still some hope for the slightly later vintages, which may have benefitted from buying companies at suppressed prices following the financial bubble. It appears that performance from more recent vintage funds might return to higher levels. For example, despite being just three years into their investment period, 2009 vintage funds boast better performance than all fund vintages 2005 and later. 6

9 PE Fund Return Multiples 2.0x 1.8x 1.6x 1.4x 1.2x 1.0x.8x.6x.4x.2x 0x 1.96x.36x 1.59x Global Average PE Fund Return Multiples by Vintage Year 1.86x.42x 1.44x 1.63x.47x 1.16x 1.56x.57x.98x 1.38x.78x.60x 1.19x.80x.95x.39x 1.23x 1.15x 1.15x.93x.96x.91x.90x.28x.22x.19x.15x.04x x.94x Unlike IRR, which can be easily manipulated and calculated in manifold ways, fund return cash multiples are fairly straightforward metrics that show the current value of an investment as a ratio of the amount that has been paid-in 2.4x 2.2x 2.x 1.8x 1.6x 1.4x 1.2x 1.x.8x DPI RVPI TVPI by the LPs. As the chart above shows, the 2001 to 2003 vintages all have an average DPI of more than 1.0x, meaning that investors have been made whole on their investment and are beginning to realize a profit. And while every vintage has a Global PE TVPI Quartiles by Vintage Year Top Quartile 3rd Quartile 2nd Quartile Bottom Quartile TVPI 25th Percentile TVPI Median TVPI 75th Percentile TVPI of at least 1.0x (excluding 2011, which is in the trough of the J-curve), it is again apparent that returns were hampered for vintages in the mid-2000s. For example, 2006 vintage funds have only mustered a TVPI of 1.19x despite being six years into their lifecycle. Looking at the TVPI quartile chart, there has been a steady decline in both the top quartile hurdle rate and the median TVPI value since the early 2000s. It is also important to note that the disparity between the top performing funds and the laggards contracts significantly in the more recent vintages; however, this gap may widen as funds mature and firms begin to realize larger proportions of their portfolio. These developments have made GP selection even more crucial, as bottom quartile funds no longer appear to be able to generate returns that justify the high fees and risk associated with PE investing. 7

10 PE Fund Cashflows $200 $150 U.S. PE Funds Annualized Cashflow ($B) by Year $100 $50 $0 $ * $-100 $-150 $-200 Distributions Contributions Net Yearly Cashflow *as of 6/30/12 During the last half of the 2000s, PE firms concentrated their attention on making new acquisitions as opposed to realizing portfolio investments presumably due to the relatively low valuations of companies following the financial bubble. For five consecutive years from 2006 to 2010, PE firms called down more capital from their LPs than they distributed. In the past two years, as the inventory of PE-backed companies has continued to swell, the focus has shifted to realizing existing portfolio investments and returning capital to investors, resulting in positive net cashflows in 2011 and through the first half of As the chart to the right shows, it has been taking longer for PE firms to return capital to investors in more recent vintage funds, but the shift from negative to positive cashflows provides some reason for optimism. The median 2001 and 2002 vintage funds had made their LP investors whole in seven years or less. That timeline has continued to expand to the point where six years into the investing cycle, the median 2006 vintage fund only has a DPI of.29x. 1.8x 1.6x 1.4x 1.2x 1.0x.8x.6x.4x.2x 0x While performance has lagged in more recent vintages, much of the problem stems from difficulties in realizing portfolio investments, with the median holding period reaching an all-time high of 5.4 years in Global Median PE DPI by Vintage Year Over Time Years since final close

11 U.S. vs. European PE Performance While PE investing has slowly been expanding to every region across the globe, the U.S. and European markets still harbor the most developed and sophisticated PE markets. The two charts on this page look at fund performance based on the fund s location. For example, despite the fact that KKR is headquartered in New York, its family of European Funds fall under the European classification because they are based out of London. As such, the charts are primarily a reflection of the performance of the PE investment strategy in that region, as opposed to the performance of the GPs that are headquartered there. Looking at the horizon IRR chart, U.S. funds have outperformed their European counterparts in the most recent time periods. This is particularly true in the 1-year horizon timeframe, with U.S. funds achieving an IRR of 5.9% and European funds posting a disappointing -5.6% IRR. However, over the 10-year period 4 35% 3 25% 2 15% 1 5% -5% All U.S. PE Funds 35% 3 25% 2 15% 1 5% -5% -1 1-year 3-year 5-year 10-year All European PE Funds All U.S. PE Funds from 2Q 2002 to 2Q 2012, European funds have significantly outperformed vehicles based in the States. As the chart below reveals, much of this outperformance can be attributed to funds raised at the beginning of the PE Average IRR by Region and Vintage Year PE Horizon IRR by Region All European PE Funds 2000s, especially the 2003 vintage, for which the average IRR for European funds is 28.9% but just 9. for U.S. funds For several years, PitchBook has discussed the impact of the financial crisis on PE performance in the U.S., but as these charts reveal, the fallout is even more pronounced on the other side of the Atlantic. After the 2003 vintage, IRR performance for European funds drops precipitously to 2.4% for 2004 vintage funds and has continued to decline steadily, with the notable exception of In fact, the average IRR for European funds is still in the red for both the 2007 and 2008 vintages despite these vehicles being past the traditional J-curve timeframe. The performance of U.S. funds fell during the same time period, but the decline was not as steep and performance has stabilized, with the average IRR hovering around 8% for most vintages in the second half of the decade. 9

12 Global PE Buyout League Tables Vintage Firm Fund Fund Size ($M) IRR* 2003 Carlyle/Riverstone Holdings Rhone Partners Onex Partners Charterhouse Capital Partners First Reserve Carlyle/Riverstone Global Energy & Power Fund II Rhone Partners II Onex Partners I Charterhouse Capital Partners VII First Reserve Fund X $1,100 $700 $1,650 $3,074 $2, % 43.1% 39.5% 39.3% 31.9% 2004 Platinum Equity Bowmark Capital Hellman & Friedman Endeavour Capital Blue Sage Capital Platinum Equity Capital Partners Bowmark Capital Partners III Hellman & Friedman Capital Partners V Endeavour Capital Fund IV Blue Sage Capital $700 $105 $3,500 $285 $ % 28.1% 27.9% 25.8% 25.4% 2005 GFI Energy Ventures Clessidra Capital Partners Advent International Lincolnshire Management Odyssey Investment Partners OCM/GFI Power Opportunities Fund II Clessidra Capital Partners Fund Advent Global Private Equity V Lincolnshire Equity Fund III Odyssey Investment Partners Fund III $1,020 $1,100 $3,235 $433 $ % 50.3% 49.5% 38.2% 26.6% 2006 H.I.G. Capital CLSA Capital Partners Denham Capital Management Littlejohn & Company Centerbridge Partners H.I.G. Capital Partners IV Fudo Capital I Denham Commodity Partners Fund IV Littlejohn Fund III Centerbridge Capital Partners $750 $430 $1,240 $850 $3, % 34.1% 28.1% 23.3% 20.6% 2007 Excellere Partners CID Capital Lombard Investments Industrial Growth Partners Industrial Opportunity Partners Excellere Partners CID Capital Opportunity Fund I Lombard Asia III Industrial Growth Partners III Industrial Opportunity Partners I $265 $75 $240 $400 $ % 28.4% 25.4% 24.7% 22.8% 2008 American Securities DLJ Merchant Banking Partners Evergreen Pacific Partners Sentinel Capital Partners Vista Equity Partners American Securities Partners V DLJ South American Partners Evergreen Pacific Partners II Sentinel Capital Partners IV Vista Equity Partners Fund III $2,300 $300 $425 $765 $1, % 37.7% 36.8% 34.8% 29.4% *as of 6/30/

13 Internal Rate of Return (%) Quarterly IRR Performance vs. Benchmark Vintage 2006 Buyout Fund size: $500M-$999M United States How do you stack up? 17.8% % 5.8% % 9.9% 5.2% 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Your fund Benchmark Firm Fund Size ($M) IRR (%) TVPI H.I.G. Capital Littlejohn & Company Veritas Capital Windjammer Capital Investors Thoma Bravo Arsenal Capital Partners Quad-C Management Arlington Capital Partners Rhone Capital The Carlyle Group InterMedia Partners Clearwater Capital Partners H.I.G. Capital Partners IV Littlejohn Fund III Veritas Capital Fund III Windjammer Senior Equity Partners III Thoma Cressey Fund VIII Arsenal Capital Partners II Quad-C Partners VII Arlington Capital Partners II Rhone Partners III Carlyle U.S. Growth Fund III InterMedia Partners VII Clearwater Capital Partners III $750 $850 $594 $575 $765 $500 $850 $575 $945 $605 $700 $ % 15.73% 14.71% % x 1.90x 1.70x 1.58x 1.95x 1.44x 1.32x 1.31x 1.21x 1.30x 1.32x 1.26x This benchmark includes 22 funds. Some funds were excluded from this table due to space restrictions. To find out... Contact us at for your benchmarks. PitchBook s extensive funds and returns data allows for meaningful and in-depth comparisons, benchmarks, and additional analysis on individual funds and their peers. The data and information in this Benchmarking and Fund Performance Report can be customized based on fund type, size, location and similar variables. For a custom benchmark or analysis, contact a PitchBook representative at.

14 Global VC IRRs For the high-risk high-reward paradigm of VC investing, the fund returns over the last decade have been decidedly disappointing. As the chart on page 4 shows, VC funds trail all types of PE funds by a wide margin in every horizon IRR timeframe except for the most recent 1-year period. It is difficult to make generalizations about the VC asset class though, as the investment strategy is largely predicated on the philosophy that investors will regularly strikeout but occasionally hit a home run. This is evident when looking at the IRR quartile chart; unlike the PE version on page 5, the VC chart is incredibly sporadic and has big spikes and valleys from one vintage year to the next. For example, the top quartile hurdle rate for a 2004 vintage fund is just 5.5%, but top quartile 2005 vintage funds boast an IRR of at least 11.5% Many people in the VC community have recently expressed skepticism regarding the burgeoning size of VC funds, believing that it will be harder to generate outsized returns. With that 2 15% 1 5% -5% % 6% 4% 2% -2% -4% 1-year 3-year 5-year 10-year All VC Funds Under $50M $50M-$250M $250M-$500M $500M+ in mind, it was somewhat surprising to find that VC funds with less than $50 million have been some of the worst performers over the last 1-year, 3-year, and 5-year periods. However, looking at the longer term picture, the 10-year horizon IRR for the smallest funds is 3%, which only trails the $250 million to Global VC IRR Quartiles by Vintage Year IRR 25th Percentile IRR Median IRR 75th Percentile Global VC Horizon IRRs by Fund Size Top Quartile 3rd Quartile 2nd Quartile Bottom Quartile $500 million fund size bucket. Interestingly, the shape of the horizon IRR line is consistent across all fund sizes except for the smallest vehicles with less than $50 million. Part of the explanation for this trend could be that larger funds are writing larger checks later in a company s lifecycle, when there should be more clarity around the business model and valuation, which can help mitigate some of the risk and volatility inherent in VC investing. The J-curve witnessed in PE fund performance does not materialize on the VC side, as the relatively small equity investments made by investors and the rapid growth of companies can quickly separate the winners from the losers. To that end, the top quartile IRR hurdle rate is highest for 2010 vintage funds despite their young age, showing how quickly investments can pay off in the VC space. Another interesting takeaway is that the bottom quartile IRR rate is negative for all vintages, meaning that at least one-quarter of the funds each year have lost money. 12

15 VC Fund Return Multiples 1.8x Global Average VC Fund Return Multiples by Vintage Year 1.68x 1.6x 1.4x 1.2x 1.0x.8x.6x.4x.2x 0x 1.26x 1.17x 1.18x 1.22x 1.21x 1.12x 1.16x 1.08x 1.06x 1.12x.93x.45x.48x.58x.76x.91x 1.03x 1.02x 1.02x 1.02x.93x.72x.70x.68x.56x.36x.25x.19x.19x.04x.06x.00x DPI RVPI TVPI One of the first things that becomes readily apparent when looking at the average TVPI of VC funds is the parity between vintages. The only vintage that stands out is 2005; however, most of the outperformance can be attributed to Union Square Ventures 2004 (despite its name, it is a 2005 vintage fund), which boasts a TVPI of 9.65x thanks to an all-star list of portfolio investments that includes Foursquare, Etsy, Twitter, Tumblr, Del.icio.us, Zynga, and 10gen, among others. Perhaps the most significant statistic from the VC fund return multiples is that there is not a single vintage year with an average DPI of 1.0x, let alone 0.8x. Furthermore, the bottom quartile TVPI hurdle rate is less than 1.0x for virtually all vintages, meaning that more than a quarter of VC funds will have to see increased performance from their current investments in order 1.6x 1.5x 1.4x 1.3x 1.2x 1.1x 1.0x.9x.8x.7x.6x Global VC TVPI Quartiles by Vintage Year TVPI 25th Percentile TVPI Median TVPI 75th Percentile to make their investors whole. While it may not be evident in the average fund multiple chart, the 2003 vintage funds appear to be particularly high performers when looking at the Top Quartile 3rd Quartile 2nd Quartile Bottom Quartile TVPI quartile numbers. Not only do 2003 vintage funds boast the highest top quartile TVPI hurdle, but it is also the only vintage with a bottom quartile hurdle rate of 1.0x or better. 13

16 VC Fund Cashflows $40 U.S. VC Annualized Cashflow ($B) by Year $30 $20 $10 $0 $ * $-20 $-30 $-40 Distributions Contributions Net Yearly Cashflow *as of 6/30/12 As could be expected with the disappointing performance of the VC asset class over the last decade, net cashflows were negative in almost every year during the 2000s. However, that trend has changed in recent years, with positive VC cashflows in 2010, 2011, and the first half of Importantly, the shift to positive net cashflows has been largely driven by increased distributions, as opposed to fewer contributions. This is an encouraging sign for the VC industry, which has struggled to return capital to investors in more recent vintage funds. The difficulties in realizing VC investments become readily apparent when looking at the median DPI chart in the bottom right corner. The highest median DPI for funds closed since 2001 comes from 2003 vintage funds, which have achieved a paltry median DPI of.70x. Unfortunately, the trajectory of later vintage funds is less steep, meaning that it will take even longer for investors in these funds to see returns. It s important to keep in mind that the average VC fund closed in 2001 and later continues to maintain a TVPI of at least 1.0x (as can be seen on page 10), so there is certainly some 1.x.9x.8x.7x.6x.5x.4x.3x.2x.1x 0x upside left for investors. However, LPs do not expect to have to wait well more than a decade to be made whole on their investments, even in an illiquid asset class like VC. Global Median VC DPI by Vintage Year Over Time Years since final close

17 Global VC League Tables Vintage Firm Fund Fund Size ($M) IRR* 2003 OrbiMed Advisors Technology Crossover Ventures New Enterprise Associates Globespan Capital Partners Tenaya Capital Caduceus Private Investments II Technology Crossover Ventures V New Enterprise Associates 11 Globespan Capital Partners IV Tenaya Capital IV $300 $900 $1,111 $285 $ % 9.5% 8.8% 8.3% Advent Venture Partners DBL Investors LSU System Research & Tech FNDN ARCH Venture Partners Gold Hill Capital Advent Private Equity Fund IV DBL Bay Area Equity Fund I Louisiana Fund I ARCH Venture Fund VI Gold Hill Venture Lending 03 $213 $75 $18 $350 $ % 20.8% 20.5% 9.3% 7.8% 2005 Union Square Ventures JMI Equity Insight Venture Partners Summit Partners Canaan Partners Union Square Ventures 2004 JMI Equity Fund V InSight Venture Partners V Summit Partners Venture Capital Fund II Canaan VII $125 $300 $675 $310 $ % 35.4% 20.9% 20.8% 15.1% 2006 FirstMark Capital OpenView Venture Partners Sofinnova Ventures OrbiMed Advisors Azure Capital Partners FirstMark IV OpenView Venture Partners Sofinnova Ventures VII Caduceus Private Investments III Azure Capital Partners II $200 $100 $375 $500 $ % 22.9% 20.1% 18.6% Avalon Ventures Foundry Group Institutional Venture Partners Emergence Capital Partners Flagship Ventures Avalon Ventures VIII Foundry Venture Capital 2007 Institutional Venture Partners XII Emergence Capital Partners Fund II Flagship Ventures Fund 2007 $150 $225 $600 $200 $ % 44.8% 38.9% 33.8% 33.1% 2008 Spark Capital Union Square Ventures BlueRun Ventures True Ventures Longitude Capital Spark Capital II Union Square Ventures 2008 BlueRun Ventures IV True Ventures II Longitude Venture Partners $360 $156 $240 $213 $ % 54.5% % 25. *as of 6/30/

18 Global Fund Benchmarks Fund Type Vintage Top Quartile IRR* Median IRR* Top Quartile TVPI* Median TVPI* % 16.5% 1.90x 1.64x All PE % 11.9% 12.6% 8.8% 1.79x 1.60x 1.61x 1.34x % x 1.20x % 6.5% 1.37x 1.20x % 17.7% 1.92x 1.65x Buyout % 12.6% 12.7% 9.2% 1.79x 1.66x 1.61x 1.38x % x 1.20x % 5.7% 1.33x 1.20x % 7.8% 1.50x 1.44x Venture Capital % 11.5% 9.2% 0.6% 5.8% 4.5% 1.34x 1.42x 1.36x 1.03x 1.20x 1.13x % 5.2% 1.28x 1.10x % 5.9% 1.80x 1.29x Debt % 8.6% 13.5% 8.1% 2.14x 1.50x 1.33x 1.39x % 1.32x 1.22x % x 1.14x % 9.5% 1.57x 1.46x Fund of Funds % % 4.6% 4.2% 1.39x 1.29x 1.23x 1.30x 1.19x 1.13x % 5.8% 1.25x 1.13x *as of 6/30/2012 Request your custom benchmark. The data and information in this Benchmarking and Fund Performance Report can be customized based on fund type, size, location and similar variables. For a custom benchmark or analysis, contact a PitchBook representative at. 16

19 Methodology PitchBook currently tracks more than 17,000 funds globally. In the Quarterly Benchmarking Reports, PitchBook examines data from more than 3,000 funds using performance statistics gathered from more than 6,500 distinct LP commitments. All returns data in this report is net of fees, as reported by LPs through 2Q DEFINITIONS PE Fund: Unless otherwise noted, PE fund data includes buyout, growth, mezzanine, and energy funds. Debt Fund: For this report, the debt fund classification includes general debt, mezzanine, and distressed debt. Vintage Year: The year in which a fund holds its final close. Internal Rate of Return (IRR): IRR represents the rate at which a series of positive and negative cashflows are discounted so that the net present value of cashflows equals zero. Horizon IRR: Horizon IRR shows the IRR from a certain point in time. For example, the 1-year horizon IRR figures in this report show the IRR performance for the 1-year period from 2Q 2011 to 2Q 2012, while the 3-year horizon IRR is for the period from 2Q 2009 to 2Q DPI (Distributions to Paid-In): A measurement of the capital that has been distributed back to LPs as a proportion of the total paid-in, or contributed, capital. DPI is also known as the cash-on-cash multiple or the realization multiple. RVPI (Remaining Value to Paid-In): A measurement of the unrealized return of a fund as a proportion of the total paid-in, or contributed, capital. TVPI (Total Value to Paid-In): A measurement of both the realized and unrealized value of a fund as a proportion of the total paid-in, or contributed, capital. Also known as the investment multiple, TVPI can be found by adding the DPI and RVPI of a fund. 17

20 103,969 25,359 62,159 8,913 6,645 17,276 Deals Investors Companies Service Providers Limited Partners Funds Want the whole pie? PitchBook tracks more Private Equity and Venture Capital data than anyone. * All PitchBook data sourced from the PitchBook Platform as of 2/11/2012 PitchBook sales@pitchbook.com Private Deal Comps Targeted Business Development Sourcing New Deals Targeted Buyers Lists Benchmarking Funds & IRR Public Company Fundamentals PitchBook Corporate Headquarters 1201 Alaskan Way, Pier 56 - Suite 200 Seattle, WA 98101