Poll: Future for VC May Be Brighter

February 27, 2003 (PLANSPONSOR.com) - Things may finally be turning around for the hard-pressed venture capital industry, a new survey found.

VC officials say they are ready to put money into new investments rather than solely trying to salvage the struggling startups languishing in their portfolios, according to a Dow Jones report. Not only that, but fewer startups should go bust this year than in previous years, a survey of Silicon Valley VC firms by Deloitte & Touche Corporate Finance found.

Sentiment among VCs on the overall economic climate is also less gloomy than it was during the fourth quarter – the most pessimistic period since the survey’s launch about two years ago. Only 25% of venture capitalists in the most recent poll said they expect the economy to improve over the next six months – double the last survey’s results. About 65% of the 122 respondents said they expect the economy to remain the same over the next six months.

“This is the first set of results in a long time, which, taken together, point to the bottom of the cycle having been reached,” Graham Watson, Deloitte’s managing director in Northern California, said in a statement. “Clearly, political and military developments overseas could easily knock the foundation of recovery, but the underlying signs of confidence … are encouraging after such a sustained period of bad news.”

More Startups Stay Around

The trend of VC-supported startups pulling the plug appears to be ebbing, according to the poll. When asked what percentage of their current portfolio companies they expect to shut down over the next year, 25% of venture capitalists said none, while 75% said less than 20%.

Over the next six months, 65% of venture capitalists expect the proportion of time spent working with their portfolio companies to remain the same.

Meanwhile, about 45% of venture capitalists plan to allocate more than half of their uncommitted capital to new investments in 2003, up from a 36% allocation last year. “Venture capitalists can’t do much about what happened in 2000 and 2001, but if they can invest in new companies with successful technologies, they can show positive returns,” Watson told Dow Jones.

About 39% of venture capitalists plan to raise a new fund over the next two years, while 56% plan to raise one in 2005 or 2006. Only 5% of the venture capitalists said they would never raise another fund.

The survey, conducted between January 6 and January 24, 2003, was of Silicon Valley venture capital executives managing funds in excess of $50 million.