Contact Information: Contact: Emily Mendell NVCA 610-565-3904 Channa Brooks Tenor Communications for NVCA 302-368-2345
Venture Capitalists Are Optimistic for 2010 Despite Predictions for Industry Contraction
NVCA Venture View Survey Forecasts Improvement in Investments and Exits Amidst Fewer and Smaller VC Funds
| Source: National Venture Capital Association
WASHINGTON, DC--(Marketwire - December 16, 2009) - Venture capitalists are cautiously
optimistic about the improving nature of their ecosystem in the coming
year, yet are realistic about an inevitable contraction of industry
resources, according to Venture View 2010, the annual predictions survey
conducted by the National Venture Capital Association (NVCA). According to
respondents, the venture industry will begin to see gradual increases in
investment levels and exit transactions in 2010, but the asset class will
continue to shrink in size over the next five years. Specific areas of
optimism include clean technology investing, growth equity and later stage
companies, and ongoing opportunities overseas.
"It is readily understood by the venture capital community that our
industry is going to contract in size going forward," said Mark Heesen,
president of the NVCA. "That will mean fewer firms, for sure, but not
necessarily fewer companies funded. There is a great deal of innovation
taking place and venture capitalists who have the track record to raise
funds will be well positioned to build companies. Most venture capitalists
will agree that a smaller industry is a better one."
The NVCA survey was conducted from November 30 - December 8, 2009 and
includes responses from more than 325 venture capitalists across the United
States.
2010 Investment: More Dollars into More Companies
Most respondents predict more venture dollars going into more portfolio
companies in 2010. Sixty-three percent of all respondents expect venture
investment dollar levels to remain the same or increase from 2009 with 44
percent forecasting a level between $21-25 billion. Half of the
respondents predict more companies will receive venture financing, while
one-third believes the number of portfolio companies will remain the same.
Clean Technology Continues to Garner Optimism
Clean Technology is the industry where most VCs predict growth with 54
percent forecasting higher investment levels in 2010. Other favorable
industries include Internet (46 percent predicting higher investment
levels), Media and Entertainment (33 percent) and Software (32 percent).
Opinions on life sciences investing in 2010 are closely split, both in
Medical Devices and Biotechnology. Respondents are almost equally divided
as to whether investment in Biotechnology will increase, decrease, or stay
the same. In Medical Devices, 38 percent expect investment levels to stay
the same while roughly one-third each predict levels to increase or
decrease.
The Semiconductor industry is the sector in which most VCs believe we'll
see a decrease next year. Sixty-four percent predict lower investment
levels in 2010. Many venture capitalists believe that the Wireless sector
will experience declines with 37 percent predicting lower levels for next
year as well.
More Venture Dollars to Flow to Asia
A majority of respondents believe that there will be more investment in
Asia with 70 percent of VCs anticipating growth in China-based investments
and 58 percent seeing greater investment levels in India in 2010. To the
contrary, most VCs (53 percent) believe investments in Israel will decline
in the coming year. Forty-five percent of respondents believe that VC
investment in Europe will remain the same.
Later Stage Investment Predicted to Increase
According the survey, most VCs expect the Growth Equity stage of
development to increase with 55 percent of all respondents predicting
increased investment there in 2010. Fifty-three percent see growth in
Later Stage investing, 49 percent in Expansion stage investing. Fewer VCs
think the number of younger company investments will grow with 45 percent
of respondents predicting growth in Early and Seed stage investments.
"Of all the predictions put forth this year, a collective lack of
enthusiasm for seed and early stage investing is the most concerning," said
Heesen. "The weak exit market combined with proposed tax policy which
would discourage long term investment puts tremendous pressure on our
industry to move towards later stage investing. Yet, seed and early stage
companies represent a pipeline that must be supported if our country is to
continue building new and innovative companies. We need the environment to
improve for these early stage investors."
Improving Exit Signs
On the exit market front, most VCs predict a mild improvement in the number
of venture-backed IPOs in 2010. Seventy-four percent of the respondents
believe there will be more than 20 IPOs next year with the average
forecasted IPO volume at 26.3 offerings. Only 10 percent of VCs predict
more than 50 IPOs.
More VCs are optimistic about the acquisitions market with 91 percent
believing the number of deals will increase and 63 percent of respondents
predicting the value of those deals will be higher.
A Contracting Industry
Respondents were consistent in their predictions for a smaller venture
capital industry over time. Eighty-seven percent believe that funds raised
in 2010 will be on average smaller than previous funds. Respondents also
predict a changing limited partner base with 48 percent predicting more
foreign LPs investing in U.S. venture funds in the coming year.
An overwhelming percentage of VCs (90 percent) predict that the number of
venture capital firms will decline over the next five years. Most of these
respondents (72 percent) believe the industry will contract between one and
30 percent.
Despite these longer term predictions for consolidation, most VCs do not
anticipate significant "in-house" changes during the next year.
Sixty-three percent believe the number of investment professionals within
their firms will stay the same and 71 percent say there will be no change
in staffing at the administrative level.
"The consolidation of the venture industry will not occur overnight," said
Heesen. "This process will be a gradual one as fewer firms than has been
the case historically will be able to raise funds. Those funds that are
raised will generally be smaller and over time, the firms will contract
accordingly. Venture capitalists will have to do more with less."
Most venture capitalists predict that they will remain in their geographic
footprint in 2010, with only 20 percent predicting an increased number of
deals outside their immediate region. Seventy-two percent expect to
maintain their current investment strategy from a geographical standpoint.
For More Information
As part of this year's survey, the NVCA asked the respondents to share
something the VC or firm will do differently in 2010, in 140 characters or
less. Read selected responses here:
www.nvca.org/predictions2010_quotes.pdf. For complete survey results
including charts, please visit:
www.nvca.org/predictions2010_presentation.pdf
About the National Venture Capital Association
The National Venture Capital Association (NVCA) represents more than 400
venture capital firms in the United States. NVCA's mission is to foster
greater understanding of the importance of venture capital to the U.S.
economy and support entrepreneurial activity and innovation. According to a
2008 Global Insight study, venture-backed companies accounted for 12.1
million jobs and $2.9 trillion in revenue in the United States in 2008. The
NVCA represents the public policy interests of the venture capital
community, strives to maintain high professional standards, provides
reliable industry data, sponsors professional development, and facilitates
interaction among its members. For more information about the NVCA, please
visit www.nvca.org.