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.
The venture capital industry took another big hit in the first quarter of the year, according to new data from Dow Jones VentureSource.
Venture capitalists invested just $3.90 billion in U.S. companies during the quarter, a 50 percent decline from the almost $7.78 billion invested during the same quarter last year, according to VentureSource. In terms of actual venture deals, 477 were completed, well below the 706 completed last year and the lowest quarterly deal total since 1996.
Hit particularly hard was the information technology industry, which saw its lowest level of investment since 1997, with $1.68 billion invested in 231 deals for the first quarter. That's a 52 percent drop from the $3.48 billion invested in 370 such deals during the same quarter last year, according to the report. That's also the lowest deal level for the IT industry--the software sector included--since 1995, the report says.
"Technology companies have long been the primary focus of venture capitalists," VentureSource's Director of Global Research Jessica Canning said in a statement. "But with a nonexistent IPO market and corporations paying less for venture-backed technologies, the incentive for investors to back new or unproven business models is just not there."
The report also documents another plunge for the green tech and clean energy sectors, with $189 million in 15 deals during the first quarter, down 59 percent from the $457 million invested in 24 such deals last year.
The report isn't quite as bleak as one released for the fourth quarter of last year from Thomson Reuters and the National Venture Capital Association, which noted a decline in VC funding of 71 percent from the fourth quarter of 2007.
Also for the first quarter of the year, VentureSource earlier this month reported a 65 percent fall in liquidity for VCs.
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Trusteer, a provider of Web security services, has raised $6 million in Series B venture capital funding, the company announced on Wednesday.
The round was led by U.S. Venture Partners. Steve Krausz, general partner for the VC firm, is joining Trusteer's board of directors.
The timing might seem odd for funding a company that serves the financial industry given the economic downturn propelled by the credit crisis. But Krausz said the market opportunity is significant for Trusteer's software, which protects online banking, brokerage, health care and retail applications from fraud, even when a user's computer is infected with malware.
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