What is the 'Vintage Year'

The vintage year is the year in which the first influx of investment capital is delivered to a project or company. This marks when capital is contributed by venture capital, a private equity fund or a partnership drawing down from its investors. Investors can use the vintage year of an investment to further explain its returns.

BREAKING DOWN 'Vintage Year'

A vintage year at the peak or bottom of a business cycle can affect the later returns on the initial investment as the company may have been overvalued or undervalued at the time. The vintage year provides information in regards to when a small business initially received its first investment capital. This can include capital from a variety of sources, so is not restricted in regards to the origin of the funds. The vintage year helps determine the nature of the business cycle in which the company entered.

Vintage Years for Comparison

By observing the trends among other companies with the same vintage year, an overall pattern can be potentially identified to gain an overview of economic sentiment at a particular time. If particular vintage years perform better than other vintage years, this information may be extrapolated to predict the performance of other companies within the higher performance vintage year.

For example, 2014 may be considered a strong vintage year in regards to crowdfunding platforms, such as GoFundMe, as they were marked by high growth. Regulations on the industry are generally considered appropriate, suggesting the future growth of these companies will not be hindered for the time being.

Impact of Business Cycles

Most businesses experience economic shifts as a regular part of doing business. This can include seasonal fluctuations experienced by certain business, such as the increase in retail sales during the holiday season or an increase in lawn care product sales in warmer months, as well as other cycles based on the occurrence of certain events such as major product releases.

The business cycle is said to progress systematically through four phases: the upturn, the peak, the decline and the recovery. During the upturn and up to the peak, the value of the company is seen to increase. During the decline until the start of recovery, the value is seen as falling.

The point in the cycle the business resided in during the vintage year may skew the appearance of the company’s true value, leaving room for analysis prior to making investment decisions. During peaks in the market, new companies are more likely to be overvalued based on the current economic outlook. This increases the expectations on an investment's return because more money is initially contributed. Inversely, companies are typically undervalued during low points in the market; because less capital is initially contributed, these companies or projects have less pressure to generate big returns.

RELATED TERMS
  1. Vintage

    Vintage is a slang term used by mortgage-backed securities (MBS) ...
  2. Peak

    A peak refers to the pinnacle point of economic growth in a business ...
  3. Market Cycles

    Market cycles include four phases of market growth and decline, ...
  4. Life Cycle

    A life cycle follows a growth to maturity pattern; an eventual ...
  5. Credit Cycle

    A credit cycle is a cycle involving the access to credit by borrowers, ...
  6. Accounting Cycle

    An accounting cycle is the process of identifying, analyzing, ...
Related Articles
  1. Investing

    Understanding Market and Full Risk Cycles

    Investor need to understand the four stages the markets tend to experience.
  2. Investing

    Earnings Cyclicality Exposes Profitable Trends

    Learn to explore a company's past profits to find today's opportunities.
  3. Investing

    Sector rotation: Knowing the essentials

    Learn how the market signals impending economic cycles and sector performance during each stage. Find out how investors can use sector rotation for profit.
  4. Investing

    6 Weird Ways To Invest

    Plenty of people have made it big-time by investing in unusual, wacky things.
  5. Investing

    The Market And Presidential Promises

    How can the presidential election affect your portfolio? Find out here.
  6. Managing Wealth

    6 Tips for Investing in Antiques

    Historically, antiques are highly appreciating assets, but be prepared for a long-term investment.
  7. Investing

    Advantages of Maintaining Low Working Capital

    Understand the benefits and advantages of maintaining low working capital as related to liquidity needs, capital allocation and operational efficiency.
  8. Investing

    Investment Rotation Strategies Using ETFs

    Timely rotation of your investments across multiple sectors and regions can yield higher returns. Here are the basics of investment rotation.
  9. Managing Wealth

    3 Things To Buy That Could Soon Be Collectibles

    Collectibles can be a notoriously fickle market, but here are a few ideas about spotting what might become a valuable collectible down the road.
RELATED FAQS
  1. What is the difference between capital gains and investment income?

    Learn about the difference between capital gains and other types of investment income, such as dividends paid on stock or ... Read Answer >>
  2. How do you calculate costs of capital when budgeting new projects?

    Before budgeting for a new project, a company must assess the overall level of project risk relative to their normal business ... Read Answer >>
  3. What type of funding options are available to a private company?

    Understand how private companies can obtain financing for startup, growth or expansion projects, and learn how this differs ... Read Answer >>
Trading Center