Venture Capitalists Optimistic About Investment Climate, But Impact of Technology Shakeout Still Felt, According to Deloitte & Touche Survey

Business Wire, August 20, 2001

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 20, 2001

For the first time since January 2001, a cross section of Silicon Valley and East Coast venture capitalists expects the technology investing climate to stabilize and lead to more investment activity, according to a recent venture capital (VC) survey done by Deloitte & Touche LLP, one of the nation's leading professional services firms.

The Silicon Valley and East Coast Venture Capital Confidence Survey, asked over 2,000 venture capital executives managing funds with assets in excess of $50 million to forecast venture capital funding trends for the next six months.

"According to the survey, VCs have adjusted their models and appear to be adopting a more traditional, disciplined approach to their investing and portfolio management. Nearly 90% of the survey respondents believe that now is a good time to be investing in the technology sector," noted Graham Watson, a managing director within the West Coast Corporate Finance Services of Deloitte & Touche.

Offsetting some of the respondents' optimism is the expectation of 72% of the respondents that "down rounds" will continue and that the valuations applied to follow on rounds are likely to decline over the next six months, accompanied by a continued high mortality rate among troubled venture-backed companies. VCs themselves do not expect to emerge unscathed: Seventy-eight percent of the respondents expect 10-33% of current VC firms to fail.

"In this environment, it is more important than ever that entrepreneurs choose their funding partner carefully. They need a VC that is focused on the long-term development of their business and one that is not distracted by other issues," said David Clark, a managing director within the East Coast Corporate Finance Services of Deloitte & Touche.

Other significant survey results

- M&A deal flow may stabilize or pick up. Nearly 93% of respondents said M&A
deals will continue to dominate portfolio exits for the next six months, which
may indicate the return of strategic buyers and a possible increase in
transaction volume.

- Exit valuations may have bottomed out. Only 37% of the VC respondents expect
further declines in exit valuations this quarter, compared to 79% in the second
quarter.

- New investment activity may increase. More than 41% of the respondents expect
to spend the majority of their time on new investments rather than sick
portfolio companies, which is a positive indicator for new investment activity
and technology entrepreneurs.

- Investor patience displays IPO frenzy. Seventy percent of the respondents
expect portfolio companies to complete smaller and more numerous financing
rounds prior to a liquidity event, indicating a trend towards longer-term
investing. This trend is reflected in 71% of the respondents expressing
sustained interest in the Biotech industry, one of the longest-term investment
sectors.

To view the reports, please visit www.us.deloitte.com.

About Deloitte & Touche's Corporate Finance Services

Deloitte & Touche's Corporate Finance provides corporate finance advisory services for private equity and venture capital firms as well as emerging growth companies throughout the U.S. Corporate Finance advisory services are provided in connection with acquisitions, divestiture, and capital raising transactions.

About Deloitte & Touche

Deloitte & Touche LLP, one of the nation's leading professional services firms, provides assurance and advisory, tax, and management consulting services through nearly 30,000 people in more than 100 U.S. cities. The firm is dedicated to helping our clients and our people excel. Known as an employer of choice for innovative human resources programs, Deloitte & Touche has been recognized as one of the "100 Best Companies to Work For in America" by Fortune magazine for four consecutive years. Deloitte & Touche is the US national practice of Deloitte Touche Tohmatsu. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity. For more information, please visit Deloitte & Touche's web site at www.us.deloitte.com.

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