UK Venture Capital Financial Returns 2023

The UK Venture Capital Financial Returns 2023 report provides a comprehensive assessment of the performance of UK VC funds since 2002. The report draws together data directly sourced from fund managers, from the Bank’s equity programmes, as well as from commercial data providers PitchBook and Preqin.

The report contains the following chapters:

• Chapter 1 provides an overview of UK VC financial returns over different time periods, as well in comparison to the US and the rest of Europe.
• Chapter 2 assesses the performance of VC funds the Bank has invested in through its Enterprise Capital Funds (ECF) programme and through British Patient Capital (BPC), and compares them against the overall VC market for funds of a similar vintage.
• Chapter 3 is a new section in this year’s report which examines the financial returns of key alternative asset classes, such as private equity, private debt and real estate, and compares them to the performance of VC.
• Chapter 4 provides an overview of current VC market conditions, covering fund managers’ perspectives on fundraising, dealflow, valuations and exit opportunities using the results from our UK fund manager survey.

Key findings

• UK VC returns closely match the US and Europe across 2002-2018 in terms of TVPI, but lag behind on DPI measures.

  Across 2002-2018 vintages UK VC funds generated a pooled TVPI multiple of 2.06, compared to 2.14 for the US and 2.04 for the rest of Europe. On DPI measures UK funds generated a pooled multiple of 0.74, lower than the US (1.15) and the rest of Europe (0.94), partly due to the younger average vintage of UK funds.

• The returns from the best performing UK funds are not as high as in the US.

  Across 2002-2021 vintages the top 1% of US funds produced TVPI multiples upwards of 9.4, compared to multiples upwards of 7.6 for UK funds. This gap also exists when using DPI as a measure across 2002-2014 vintages, with multiples upwards of 10.1 and 6.1 respectively.

• UK VC returns have declined slightly since last year, as some fund managers write down valuations.

  In a sample of 130 UK funds reporting data in both 2022 and 2023, the pooled TVPI decreased by 0.2 (9%) from 2.18 to 1.98. The pooled DPI remained unchanged at 0.41, highlighting difficulties fund managers are experiencing in achieving successful company exits.

• ECF and BPC-supported funds generally outperform or perform in line with funds across the wider UK market.

  ECF-backed funds with a 2006-2021 vintage reported a pooled DPI of 0.64, outperforming funds in the wider UK VC market (0.46). BPC-backed funds with a vintage between 2013-2021 reported a pooled DPI multiple of 0.19, in line with the overall UK VC market (0.22).

• Private equity and VC produce the highest returns on average when comparing asset classes, though the top performing VC funds can generate higher gains.

  While UK private equity funds generated a higher median TPVI (1.78) than UK VC funds (1.67) across 2002-2018 vintages, the upper quartile performance of VC funds was higher than for any other alternative asset class.

• Fundraising and exit conditions are challenging, while the majority of market participants expect valuations to decline or stabilise over the next year.

  This year’s survey of 58 UK VC fund managers found that 64% view the conditions for raising a new fund as poor or very poor. While 41% of respondents believe average valuations will remain in line over the next year, a third expect them to fall further.