Survey: Venture capitalists’ confidence falls in Silicon Valley and China

SAN FRANCISCO
July 29, 2011 5:23am

There’s been a significant decline in confidence about the future among venture capitalists involved with the Silicon Valley – and China, according to the University of San Francisco School of Management, which produces the quarterly report.

Its “Silicon Valley Venture Capitalist Confidence Index” for the second quarter of 2011, based on a June 2011 survey of 35 Bay Area venture capitalists, registered 3.66 on a 5 point scale (with 5 indicating high confidence and 1 indicating low confidence).

This quarter’s index dropped significantly from the previous quarter’s reading of 3.91 ending the upward momentum in confidence since its low point in Q4 2008, USF says.

“While many of the participating venture capitalists continued to be confident in the future prospects of the high-growth entrepreneurial environment, an increasing number found reason for caution due to worrisome macro economic trends, seemingly inflated valuations, uneven capital availability, and regulatory constraints in the life science arena,” says Mark Cannice, professor of entrepreneurship and innovation at the University of San Francisco School of Management and author of the report.

He quotes Bob Pavey of Morgenthaler Ventures as saying, “We are still in the early stages of an upturn ... but there will continue to be many downs as well as ups. Some of the downs will be painful.”

Adds Bob Ackerman of Allegis Capital, “The venture market is still regaining its footing. A capital shortage in very early stage investing is overshadowed by exuberance in the social media sector.”

However, Deepak Kamra of Canaan Partners stays in the report, “Despite recent volatility, the exit window is still open for M&A and IPO’s, and will probably be open for quality companies for some time.”

Mr. Cannice says that while a general up-cycle in the venture environment persists, there is a risk that politically induced economic uncertainty in the U.S. and Europe could dry up liquidity in the financial markets and among corporate acquirers that could constrain the currently vibrant exit market.

In a companion study on confidence among venture capitalists in China, Mr. Cannice and his co-author Ling Ding, found confidence declining to near a six year low on concerns of bubble valuations, more difficult exits, and a slowing economy.