Silicon Valley VCs Are Feeling a Little More Optimisticby
However, thier outlook remains lower than a year ago
Few IPOs and mergers temper enthusiasm from previous highs
Venture capitalists in Silicon Valley, a group that backs more startups than any other worldwide, had slightly higher confidence in the market during the second quarter, according to a survey by the University of San Francisco. However, outlook remains lower than a year ago as startups struggle to raise funding and delay going public.
The Silicon Valley Venture Capitalist Confidence Index found that investors are concerned about overvalued startups, unsustainable business models, a weak pipeline of initial public offerings and few acquisitions. Confidence rose to 3.6 out of 5, which is below an average of 3.71 since USF professor Mark Cannice began collecting data in 2004.
Young companies are finding it more difficult to raise money while more mature ones capture a higher proportion of funding to help them stay private longer. Only three venture-backed tech companies have gone public this year, raising a total of $346.3 million, according to data compiled by Bloomberg. The dearth of IPOs has left VCs with fewer opportunities to cash out.
Some VCs see the more hostile startup environment as healthy. Venky Ganesan, managing director at Menlo Ventures and president of the National Venture Capital Association, a trade group, said he’s “long-term bullish, short cautious.”
“Healthy trees need pruning, and the high-growth venture entrepreneurial ecosystem in the Bay Area needs this,” Ganesan said. “There are too many entrepreneurs in San Francisco who think drinking Red Bull, eating Twizzlers and playing foosball equates to value creation.”
Investors still have plenty to be cheerful about. Venture funds raised $22.5 billion in the first half of 2016, the highest amount in at least a decade, according to the NVCA. Investors said industry shifts to cloud software, mobile and big data continue to show promise, as do biotech, virtual reality, self-driving cars and drones, the confidence study said.
Although the survey samples fewer than 50 investors each quarter, its findings appear to have signaled past changes in funding trends. When the VC confidence rating dropped to an all-time low of 2.77 in late 2008, funding decreased about 25 percent the following year, according to research firm PitchBook Data.