VC属于alternative investment中的一种，因此，拿指数作为参考也是可以的

I got into a discussion yesterday with a colleague about financial performance measures. We started off talking about hedge fund managers being selective about such things, and then got to mulling venture capitalists comparing fund performance to public market indices (which they only do, of course, when they’re beating said indices soundly).

Nevertheless, said VCs’ usual index of choice is the S&P 500. But why? As my colleague argued, the S&P 500, while a well-known index, and in many ways synonymous with U.S. capital markets, is decent for some performance measurements, mediocre for others, and downright wrong for still more.

In this case, it doesn’t make much sense for VCs to compare themselves to the S&P 500 merely to give themselves capital markets comparability. After all, the sorts of companies in the S&P 500 are nothing like the sorts of companies in a venture portfolio. And at the same time, any fund manager making an allocation to venture is not likely reallocating from money earmarked for large-cap indexing, but more likely from small-cap growth.

With the preceding in mind, a better index might be the Russell 2500, or even the Russell 2000. Both of those skew to smaller companies, both in terms of sales and market capitalization, and are therefore more similar to the sorts of emerging companies you find in a typical VC’s portfolio.

Here are the two indices compared over the last 5 years. As you can see, while the S&P 500 has done okay, the Russell 2000 has outperformed it handily, while being considerably more more volatile. Needless to say, perhaps, returns of both the Russell 2000 and the S&P 500 fairly handily stomped the 5-year returns of VCs, with the latter turning in an 8.5-percent annualized number (as of 12/31/2007).

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Here, for comparison, are the 12/31/2007 venture numbers, as provided by the NVCA. As you can see, they include the usual S&P 500 comparison. (As an aside, some VCs like to fall back on the industry’s good 1-, 3-, and 10-year numbers, and brush aside the 5-year numbers. Admittedly, that is a fun game, but the first two numbers are too short to be meaningful, while the 10-year number is badly skewed by the bubble.)

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