Venture Survey Forecasts A Big Chill, With Solar Bright Spot, in 2009

More gloomy forecasts from private investors in high-tech sectors. U.S. venture capitalists see a cooling trend in the investment climate for the year ahead. One of the only bright spots I saw in the National Venture Capital Association (NVCA) Predictions Survey is that a majority of VCs are optimistic that the market for initial public offerings will begin to recover in 2010. So I hope venture capitalists like the companies in their portfolios, because a majority of those surveyed believe exits will be hard to come by in 2009.

The report mostly validates what we’ve heard VCs saying for several months now: dig in for a rocky 2009, and better make sure your best portfolio companies are ready to leap to an IPO or M&A exit when the markets rebound. The NVCA says its third annual predictions survey included 400 venture investors from across the U.S.

The survey predicts there will be more “green” flowing toward green technologies next year, with 48 percent of venture investors believing cleantech investments will increase next year. That contrasts with the green meanies—the 32 percent who predict investments will decrease in firms that develop solar and other alternative energy technologies or environmentally friendly products and services. Cleantech is the only sector in the survey—which included all IT and life sciences sectors—in which a majority of VCs predict more investment activity rather than less.

Media and semiconductors are in for the worst year in 2009, according to the survey. A full 71 percent of VCs surveyed see a decrease in media investments next year, while only 11 percent believe media investments will increase. Even worse, 79 percent predicted semiconductor investments will fall in 2009—with a scant 3 percent forecasting an increase.In perhaps the broadest measure of VC investment outlook for 2009, 92 percent of those surveyed believe venture investments will be less than the estimated $29 billion invested in 2008. How much less? About 61 percent think it will be under $27 billion.

I hate using canned quotes from these studies, but I thought Bob Pavey, general partner at Morgenthaler Ventures, made a good point in this one: “2008 feels like 1974 to me. Naysayers in 1974 were saying entrepreneurs and venture capitalists were obsolete and small company IPOs were a thing of the past. They were obviously wrong. The only good news I can offer today is that the forecasters don’t have any better insight into the future than the rest of us.”

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