Never mind that exits are now at a six-year low and that venture capitalists themselves continue to struggle to raise money. For the second quarter in a row, confidence among VCs in the Valley is up. The streak follows six consecutive quarters of decline starting in mid-2007, according to an ongoing survey of VCs by the University of San Francisco. The survey has a small sample size—42 venture capitalists—but is widely followed and is considered to be a leading indicator of the sector’s health.
So what’s driving the optimism? Survey author Mike Cannice writes that most VCs think that the worst of the financial crisis is over. The crisis has also driven their portfolio companies to be more capital efficient which should help in the long-term. By no means, of course, are troubles over. On a scale of 1 to 5, confidence is now at 3.37, just above where it was at the start of 2008. And, indeed, Cannice writes that many VCs do remain worried about the lack of exits.
However, he also says that increases in venture capitalist confidence tend to precede rises in the total value of venture-backed IPOs by one quarter. In fact, during the second quarter there were three additional venture-backed IPOs, after the survey showed that venture capital confidence was up during the first quarter. Thus, Cannice expects there will likely be additional venture-backed IPOs ahead. Read the full survey results here.
By Joseph Tartakoff