Survey Shows VCs Expect Huge Shifts in Fundraising, Global Investing

We keep hearing there’s no better opportunity to start a company than during hard times, but a survey of venture capitalists shows that doesn’t necessarily translate into increased investment activity.

In fact, results of a survey of VCs around the world being released today show that just over half (51 percent) of 725 VCs who responded say it is currently “a terrific time” to invest in entrepreneurial companies. But the survey also reveals that 51 percent of the VCs also say they are decreasing their investment activity. Only 13 percent are increasing the number of companies in which they plan to invest, according to the 2009 Global Venture Capital Survey by Deloitte Touche Tohmatsu and the National Venture Capital Association.

That might seem self-contradictory, but NVCA spokeswoman Emily Mendell says a terrific time for investing in startups may simply reflect the VCs’ view “that valuations are low and entrepreneurs are hungry. It doesn’t necessarily mean that they’ll invest in more companies.”

The survey, which was conducted during the first three months of 2009, uncovered some other interesting trends and sentiments:

—The financial sector’s willingness to invest in venture capital funds is collapsing. Instead of measuring that directly, however, the survey only reflects what VCs are anticipating will happen over the next three years. Still, their expectations are grim: 88 percent say the recession will affect the willingness of commercial banks to invest in VCs as an asset class, and 87 percent say the same for investment banks—although banks generally are not major investors in VC funds. But college endowments are, and 59 percent of VCs expect their willingness to invest will be affected, along with insurance companies (65 percent), private pension funds (51 percent), and public pension funds (55 percent.)

—Perhaps as a result of the anticipated pullback among U.S. institutional investors, VCs anticipate that their investor base will become more global. In the United States, 52 percent expect the number of limited partner investors from foreign countries will increase.

—According to the survey, 50 percent of respondents believe that VC investment will increase in Asia (excluding India); 43 percent in India; 36 percent in South America; 25 percent in Europe and the UK; and just 17 percent see investments increasing in North America.

—With a couple of notable exceptions, most VCs (79 percent) say they expect investment levels to remain stable across all industry sectors. But investments are rising in cleantech and declining in the semiconductor sector, which includes electronics. The survey shows almost two-thirds of VCs (63 percent) expect to increase their investments in renewable energy and other clean technologies over the next three years, while only 6 percent expect their cleantech deals to decline. Conversely, 50 percent of VCs expect to decrease their investments in semiconductors, while only 6 percent anticipate an increase.

Summarizing the results, NVCA chairman and Polaris Venture Partners co-founder Terry McGuire says, “Innovation is abundant on a global basis today and opportunities are alive and growing everywhere. Any country that is prepared to nurture its venture capital and entrepreneurial ecosystem is poised to benefit economically and not necessarily at the expense of another region. The game is one for everyone to win.”

The survey respondents are general partners of venture capital firms with assets under management that range from less than $100 million to more than $1 billion. The 2009 survey must have touched a nerve because 725 VCs responded—almost double the number compared to last year. Of the total, 44 percent are based in the United States, 21 percent in Europe (excluding the U.K.), 16 percent in the Asia- Pacific region, 10 percent in the Americas (excluding the U.S.), 7 percent in the U.K., and 2 percent in Israel.

Complete survey results can be found here.

Bruce V. Bigelow was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Follow @bvbigelow

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