April 8 (Bloomberg) -- Venture capitalists’ confidence in the U.S. economy rose in the first quarter from a five-year low because of prospects for the government’s stimulus efforts, according to a survey being released today.

The confidence rating from investors responding to the University of San Francisco’s quarterly survey rose to an average of 3.03, on a scale of 1 to 5, from 2.77 in the fourth quarter. They also cited recent strength in the stock market as a reason for optimism.

The increase came even as acquisitions of venture-backed companies plunged and the market for initial public offerings stayed frozen, leaving backers of start-up companies with few profit opportunities. Investments by venture capitalists fell 26 percent in the fourth quarter from a year earlier, the latest data show.

“A sense of foreboding seems to be giving way to an expectation of gradual, if slow, recovery,” Mark Cannice, executive director of university’s entrepreneurship program, wrote in the survey report.

Respondents said they were encouraged by new government spending, including clean-energy projects that research firm IDC has estimated will generate about $78 billion of capital spending.

The split between rising confidence and declining venture investment isn’t as unusual as it may seem, Cannice said in an e-mail interview. He said a forthcoming study he did with a colleague shows that investors’ confidence rises when fewer dollars chase the same deals, making it cheaper to buy stakes in young companies and more profitable when the IPO market thaws.

Leading Indicator

IPOs of venture-backed firms tend to rise in the quarter after an increase in the survey’s confidence ratings and vice versa, Cannice said. “This implies the IPO market for venture- backed firms should get better. It’s not too hard to do better than no IPOs for two quarters.”

There have been no U.S. IPOs of venture-backed companies since August, the longest stretch without a startup going public in at least 38 years, according to the National Venture Capital Association, a trade group.

The dollar value of acquisitions involving venture-backed companies fell 86 percent in the first quarter, the group said April 1.

Thirty-one venture investors took part in the university’s survey, whose fourth-quarter reading was the lowest in its five years.

“It will take at least two years for things to stabilize, but at least we are talking about that recovery,” David Epstein, a venture capitalist at Epstein Advisors in Palo Alto, said in the survey report.

To contact the reporter on this story: Tim Mullaney in New York at tmullaney1@bloomberg.net

Last Updated: April 8, 2009 00:01 EDT