VC confidence level takes third-quarter hit

Venture capitalists' confidence level took another hit in the third quarter, marking the sixth-consecutive quarterly decline for the Silicon Valley Venture Capitalist Confidence Index, which was released Wednesday.

The index fell to 2.89 points, nearing the midway point of a 5-point scale, with 5 ranking the highest confidence level.

According to Mark Cannice, associate professor of entrepreneurship and the founder of the University of San Francisco's Entrepreneurship program and author of the index, the faltering confidence level stems from several factors:

The unprecedented deterioration of macro economic conditions and the resulting impact on the venture capital business model were cited most often by this study's responding venture capitalists as the factors that negatively impacted their confidence in the near term environment for growth ventures.

While the lack of IPO exits has adversely impacted the (liquidity events) of the VC business model this year, the precipitous decline in the value of stock portfolios of some limited partners (e.g., pension fund asset managers) will likely limit the amount of capital committed to venture funds in the near term.

Since the first quarter of 2007, when the index stood at 4.38 points, the level of VCs' confidence has edged down every quarter. And in the last four quarters, the index has hit new lows since it was created in 2004. The index was derived from a September survey of 33 San Francisco Bay Area venture capitalists.