Venture capitalists are the latest group showing more confidence in an economic recovery that will revive business, according to a quarterly survey released Thursday.
For the second quarter, the Silicon Valley Venture Capitalist Confidence Index showed an uptick, hitting 3.37 on a 5-point scale, up from the previous quarter's mark of 3.03. This is the second consecutive rise since the index dropped to a five-year low in the fourth quarter of 2008.
Based on an ongoing survey of San Francisco Bay Area venture capitalists, the index measures their confidence level in the market for initial public offerings and entrepreneurs over the next 6 to 18 months.
A report of the latest results from the June survey of 42 venture capitalists was released by its author Mark Cannice, associate professor with the University of San Francisco School of Business and Professional Studies.
"Venture capitalists expect that the worst of the financial crisis is behind us," said Cannice in his report. "While the effects of the financial market disruption on the venture industry will linger for some time, most VCs observed an increasingly determined and talented pool of entrepreneurs and a continuing march of innovation."
Although IPO funding has been scarce, the second quarter was boosted by the reopening of the market for venture-backed firms after two down quarters, noted Cannice. VCs believe their underlying business model is recovering.
Among the VCs questioned for the survey, Sandy Miller of Institutional Venture Partners said: "There has been a stabilization in the environment generally in the last two months...While we are by no means out of the woods, the tone for both entrepreneurs and investors has improved."
Kurt Keilhacker of TechFund Capital added: "There are definite signs of stabilization and hints of increased activity, especially in clean-energy sectors. Innovation is not dependent on a certain unemployment rate or stock index. Rather, innovation is often catalyzed by times of uncertainty."
Cannice noted that the lack of money has forced venture capitalists to identify and work with only the "most resilient and creative entrepreneurs." But this has instilled a sense of efficiency in these new firms, which should help them sustain over the longer haul.
VC Bill Byun of Samsung Ventures said: "In today's environment, when I meet a team of start-ups with compelling business ideas, I witness more than passion. I hear hunger to succeed and solve real problems versus testing out a business concept with an investor." Echoing that sentiment, Jim Marshall of Selby Ventures added, "Times like these truly separate the real entrepreneurs from the 'get rich quick' folks."
In summing up his findings, Cannice said in his report: "When the public capital markets right themselves fully, there will exist a healthy supply of innovative and efficient venture-backed enterprises ready to refresh their ranks."
The full report of the June survey is available at the USF Entrepreneurship Program Web site.
This was originally posted at ZDNet's Between the Lines.
Venture capitalists are becoming slightly more upbeat about the economy and market, according to the latest read from the Silicon Valley Venture Capitalist Confidence Index, which was released Wednesday.
The ongoing survey of VCs in the San Francisco Bay Area found that venture capitalist confidence registered a 3.03 on a 5-point scale (5 shows high confidence). The first-quarter read was up from the fourth quarter's tally of 2.77, which was a five-year low. (See report overview, PDF).
(Credit:
Silicon Valley Venture Capitalist Confidence Index)
Is it party time? Not quite.
University of San Francisco professor Mark Cannice writes:
This mustard seed of hope appears to be taking sprout among a majority of the venture capitalist respondents who provided their insight to the March 2009 survey. And it is nurtured by venture capitalists' faith in the resilience of entrepreneurs to build efficient enterprises with disruptive solutions, more modest expectations for growth and valuations, and the early stages of a stabilization in the financial system. Most importantly, this hope is leading to a more optimistic climate and new investments, with numerous VCs believing that great companies tend to be launched in difficult economic environments. As venture capitalists take a long term perspective in shepherding their portfolio firms over years rather than quarters, investments made today are expected to grow and blossom on the other side of the current economic malaise. The modest but measurable uptick in confidence in Q1 breaks the extended decline and provides an important step toward new entrepreneurial growth opportunities.
Judging from the VC comments collected by Cannice it appears that:
VCs think the global economic crisis has stabilized.
But the economy is still an overhang.
Great companies will emerge in the economic wreckage.
And investments are like roach motels: There are no exit strategies.
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