Venture capital returns continue to slump -- falling for the third consecutive quarter, according to the U.S. Venture Capital Index. But the deterioration slowed in the most recently reported quarter and industry watchers brag that the venture business still outperformed the Nasdaq, S&P 500 and Dow. Venture returns were down 2.9 percent in the first quarter, which compares to a 12.5 percent decline in the previous quarter.

It's been a rough period for the venture industry since their primary money mechanisms -- mainly IPOs and M&A deals -- are few and far between. There's been some evidence recently that those markets may be turning around, with five companies already pricing shares in the public markets this month.

Source: Renaissance Capital

Some big acquisitions also have brightened the spirits of VCs, such as Amazon.com's buyout of Zappos and Facebook's recent purchase of FriendFeed. 

But so far this year only 21 companies have completed IPOs, which compares to 43 for all of last year and 273 in 2007, according to Renaissance Capital's IPOHome.com.

And that lack of an exit market is bringing down returns.

Astrid Noltemy, managing director at Cambridge Associates, the firm which compiled the report, said the negative returns reflected public market declines, the difficult economic environment and the absence of IPOs.

"Recent negative returns coupled with the technology bust at the beginning of the decade have severely impacted the index’s performance since 2000," said Noltemy. "Long-term performance, however, remained strong. Yet because of the shortage of exit opportunities, venture fund managers will need either to own companies longer or potentially sell at reduced values. Either will hurt future returns.”