Q-News

January 2009

US VC Predictions for 2009

Posted in Mike's Commentary

One has to look no further than the recent NVCA Annual Survey published on December 17 to get a good sense of how the morass of economic reports and prognostications of doom and gloom are affecting the mindset of many US venture capitalists.  While many of us might share similar expectations for 2009, a number of the predictions have a real and significant impact for Canadian technology companies that in the past could rely on US capital for Series B and C rounds.  Below you will find a quick summary of some of the more salient points:

 

  • Almost all VCs (96%) predict that it will be harder for new companies to get funded in 2009 while 93% believe that it will be harder to sustain existing portfolio companies in the coming year;

  • 92% of US VCs are predicting a slowing of venture investment in 2009,  expecting total investment to range between $29 and $30 billion range;

  • Sixty-one percent of the respondents believe the decline in year-over-year investment will be greater than 10% and fall to below $27 billion in 2009;

  • More than half of the respondents are predicting declines in investment in every major foreign region with 74% calling for a decrease in venture investment in Europe, 56% predicting a decline in Israel and India and 51% predicting a decline in China.  There was no mention of expected investment levels for Canada;

  • Fifty-three percent predict that they will invest in the same or more portfolio companies in the coming year;

  • 60% of those surveyed are predicting a slowdown in seed investment while 64% predict a slowdown in early stage investment;

  • 79% of respondents expect a decrease in investment in the semiconductor industry, 71% see a decline in media/entertainment; 60% see a decline in wireless communications;

  • Clean technology investment is expected to increase by 48%; 25% predict an increase in biotech and 24% expect medical device sector investment to increase;

  • 85% of respondents believe institutional investors will reduce commitments to venture capital asset class;

  • 72% do not expect the IPO market to re-open for portfolio companies until 2010 or beyond while an interestingly optimistic 8% see the market opening in the fourth quarter of 2009;

  • 57% expect venture-backed acquisition volume to remain the same but 87% of respondents predict that acquisition transaction value will decline;

  • 92% of respondents believe that venture capital returns will decline in the short term (3 to 5 years) while fully 83% believe performance will suffer in the longer term (5 to 10 years).

While it is currently difficult too see the light and predict the timing and extent of a turnaround, it is generally accepted that when all of the industry pundits are glowingly positive on market prospects, its time to sell, and when they’re all negative, its time to buy.  Let’s hope the old market theories work again.

 

On another note, the Canadian Venture Capital Association just published an interesting study on “Why Venture Capital is Essential to the Canadian Economy”.  Of particular note is the fact that 1,755 venture-backed companies were operating in Canada in 2008 with 15 of these companies being financed prior to 1996.  These companies accounted for $18.3 billion in sales, 63,955 employees in Canada and 17,760 employees abroad.  A similar study in 2007 published by Global Insight is an equally interesting read and reported that companies that received venture capital investment from 1970 to 2005 accounted for 10.4 million jobs and $2.3 trillion in revenue in the United States in 2006.

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