Venture capitalists and venture-backed CEOs are feeling more optimistic about 2011, according to the fifth annual outlook survey being released today by the National Venture Capital Association and Dow Jones VentureSource. The most recent “Venture View” survey is based on responses from more than 330 VCs and 180 executives that were collected nationwide at the beginning of December.
With investors returning to the public markets (the Standard & Poor’s 500 stock index is up 11 percent this year, and more than 80 percent since March 2009), two-thirds of the VCs say they expect to see more venture-backed companies going public in 2011. Venture capitalists also predict that venture firms also will invest more capital in the coming year—which is a good thing, since more than two-thirds of the CEOs say they plan to pursue additional funding in 2011.
Venture-backed chief executives say they expect to hire more, sell more, and (of course) get paid more in 2011.
The survey suggests that VCs are gaining confidence in the improvement of their industry, and in the recovery of the U.S. economy in general.
At this time last year, the survey showed that venture capitalists were only cautiously optimistic. “The market was so troubled in 2009, the sentiment was that things had to get better in 2010,” says NVCA President Mark Heesen in a statement. “The improving exit market and a renewed excitement in the IT sector have engendered a confidence among VCs and the CEOs of the companies in which we invest that promises to propel the startup community forward in 2011.”
VCs were less confident, though, about their own prospects for fund-raising—which poses a concern for the industry’s well-being. When asked “How will U.S. venture capital fund-raising fare in 2011?” 38 percent of the VCs said they expect fund-raising to increase, while 32 percent expect it to decrease, and 30 percent anticipate that fund-raising will remain unchanged. Nearly half (48 percent) said they expect to see more foreign limited partners in U.S. funds in the coming year, and 76 percent expect fundraising terms to favor LPs.
Among the findings of the survey:
—Fifty-one percent of the VCs say venture capital investments should increase in 2011. Twenty-four percent say the level will stay the same; another 24 percent predict a decline.
—As Heesen indicated, when venture capitalists were asked, “How will VC investment dollars fare by industry in 2011?” more VCs expect investments in information technology to increase than in the life sciences or cleantech sectors. And which IT sectors do they view as hot? In consumer Internet and digital media, 82 percent of the VCs expect investments to increase. Eighty percent predict investments will increase in cloud computing, 77 percent anticipate an increase in health IT funding, and 66 percent predict VC investments will rise in mobile and telecom.
—In the life sciences, VCs were divided on the prospects for 2011, with nearly equal numbers of venture capitalists predicting investments in biopharmaceuticals will increase (33 percent), stay the same (34 percent), or decline (33 percent). The outlook for medical devices was almost the same with 35 percent predicting an increase, 35 percent predicting investments will remain the same, and 30 percent predicting a decline.
— Of the VCs who plan to invest outside the U.S., 26 percent anticipate investing in China, 19 percent in Western Europe, and 18 percent are looking for deals in India. Another 11 percent indicated an interest in investing in Latin America in 2011.
—Most venture capitalists (90 percent) and CEOs (84 percent) expect the startup ecosystem in Silicon Valley will improve or stay the same. The predictions are similar for the startup ecosystems in New England and New York, although almost half the VCs (49 percent) say the startup ecosystem in New England will improve, with another 36 percent saying it will stay the same. Asked to name a region outside of Silicon Valley, New England, and New York that is poised for growth, Southern California ranked highest, garnering 21 percent of the VCs.
—Just over two-thirds (67 percent) of the VCs predict that venture-backed IPO volume will increase in 2011. Even more VCs (72 percent) anticipate that the volume of tech IPOs will increase. In the life sciences, only 36 percent of the VCs expect to see increased IPO volume, while 45 percent predict that the volume will remain the same.
—Most VCs (82 percent) also expect to see a higher number of acquisitions in 2011, with most of the buyout activity focused on the tech sector. While 84 percent of the VCs see more M&A deals in the tech sector, just 59 percent expect to see an increase in buyouts among life science companies.
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