Silicon Valley Venture Capitalists' Confidence Falls to 5-Year Low

Business Wire, Jan 28, 2009

USF Report Reveals Insights from VC Community

SAN FRANCISCO -- The Silicon Valley Venture Capitalist Confidence Index[TM] for the fourth quarter of 2008 registered 2.77 on a 5 point scale, falling from the previous quarter's reading of 2.89 to a fifth consecutive new low in the five year history of the Index. The 2.77 reading indicates a continuing downtrend in venture capitalists' confidence in the future high-growth entrepreneurial environment in the Bay Area. Authored by professor Mark Cannice of the University of San Francisco (USF) School of Business and Management, this quarterly VC Index (Bloomberg ticker symbol: USFSVVCI) is based on a January 2009 survey of 33 Silicon Valley venture capitalists.

"The beaten down financial markets and the resulting negative impact on the liquidity prospects of most venture-backed firms weighed on confidence," explained Dr. Cannice. In the survey, TC Wang of Acorn Campus indicated, "Uncertainties in the financial market for the next 12 months will clog the M&A and IPO pipeline worldwide." However, Cannice expects opportunities may still emerge. As Sandy Miller of Institutional Venture Partners explained, "2009 will remain a challenging year for exitsObut it should be a great year for new investments." Eric Buatois of Sofinnova Ventures added, "Owe are likely to see very strong companies created in the next two years."

Some respondents anticipate that the extended economic downturn may lead to new industry directions. Joe Mandato of De Novo Ventures said, "The industry is trying to figure out what its course should be in the face of this environment." Moreover, Dan Lankford of Wavepoint Ventures offered, "There is a good chance that the venture industry is 'de-evolving' toward its roots of small, early stage funds where the partners made most of their money from capital appreciation."

While industry reports indicate a significant decline in VC fund-raising for Q4, Cannice and co-author, Dr. Cathy Goldberg, recently completed an empirical study forthcoming in the International Journal of TechnoEntrepreneurship, that found VC confidence tended to rise following decreases in total industry capital commitments (essentially decreasing investor competition for a given number of promising enterprises). This relationship and the long-term perspective of Silicon Valley Venture Capitalists allow for cautious optimism in the medium term. The complete Q4 Report is available at www.Cannice.net.