Key Takeaways
- • UK venture capital funds with 2002-2006 vintage outperformed US peers significantly, delivering a pooled DPI of 1.95 versus 1.04, comparable to US VC performance in the 1980s-1990s (DPI of 2.22-2.56).
- • From 2007 onwards, UK VC returns remain competitive with the US, though slightly lower, with UK pooled TVPI of 1.54 versus US TVPI of 1.88—a narrow 0.34-point differential that challenges the narrative of UK underperformance.
- • The British Business Bank's comprehensive analysis, drawing data from PitchBook, Preqin, and internal programmes, demonstrates that UK and US VC funds share similar return distributions, except for a small cohort of exceptional US funds that significantly outperform.
- • The research addresses a critical data infrastructure gap in the VC market, where publicly available returns data comes from limited sources and exhibits inconsistencies—a problem the British Business Bank committed to resolving following recommendations in its Future of DC Pensions report.
Summary
The British Business Bank has published empirical research challenging a widespread misconception in the investment community: that UK venture capital systematically underperforms its US counterpart. Released on 24 October 2019, the "Analysis of UK Venture Capital Financial Returns" report provides the first comprehensive comparison of UK and US VC performance across multiple vintage cohorts using consolidated data from institutional sources including PitchBook and Preqin, supplemented by the Bank's proprietary programme data.
The findings reveal a nuanced performance picture. For earlier-stage funds with 2002-2006 vintage years, UK VC funds decisively outperformed US equivalents, posting a pooled Distribution to Paid-In (DPI) multiple of 1.95 compared to just 1.04 for the US—a 91 basis point advantage. More striking, the DPI achieved by this UK cohort (1.95) rivals the peak performance of US funds during the technology boom of the 1980s (2.22 DPI) and 1990s (2.56 DPI), suggesting that UK venture capital generated exceptional returns during its earlier vintages.
For more recent fund vintages from 2007 onwards, the performance gap narrows considerably. UK VC funds achieved a pooled Total Value to Paid-in Capital (TVPI) of 1.54 versus 1.88 for US funds, representing only a 0.34-point differential. This modest underperformance diverges sharply from industry perception and indicates that UK VC is competitive with US markets on a risk-adjusted basis. Critically, the report notes that UK and US funds exhibit similar distributions of returns across the market, with the primary exception being a small number of top-tier US funds that achieve outsized performance, inflating the US average.
The research addresses a systemic deficiency in market infrastructure. VC return data has historically derived from a limited number of sources, and inconsistencies across databases have obscured the true performance of the UK asset class. This report represents the first step toward one of the key recommendations from the British Business Bank's earlier "Future of DC Pensions" report: establishing more robust, standardized data on UK VC returns to inform institutional capital allocation decisions, particularly from pension funds and long-term capital pools.
The findings reveal a nuanced performance picture. For earlier-stage funds with 2002-2006 vintage years, UK VC funds decisively outperformed US equivalents, posting a pooled Distribution to Paid-In (DPI) multiple of 1.95 compared to just 1.04 for the US—a 91 basis point advantage. More striking, the DPI achieved by this UK cohort (1.95) rivals the peak performance of US funds during the technology boom of the 1980s (2.22 DPI) and 1990s (2.56 DPI), suggesting that UK venture capital generated exceptional returns during its earlier vintages.
For more recent fund vintages from 2007 onwards, the performance gap narrows considerably. UK VC funds achieved a pooled Total Value to Paid-in Capital (TVPI) of 1.54 versus 1.88 for US funds, representing only a 0.34-point differential. This modest underperformance diverges sharply from industry perception and indicates that UK VC is competitive with US markets on a risk-adjusted basis. Critically, the report notes that UK and US funds exhibit similar distributions of returns across the market, with the primary exception being a small number of top-tier US funds that achieve outsized performance, inflating the US average.
The research addresses a systemic deficiency in market infrastructure. VC return data has historically derived from a limited number of sources, and inconsistencies across databases have obscured the true performance of the UK asset class. This report represents the first step toward one of the key recommendations from the British Business Bank's earlier "Future of DC Pensions" report: establishing more robust, standardized data on UK VC returns to inform institutional capital allocation decisions, particularly from pension funds and long-term capital pools.
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