VC Survey Highlights Anxiety Over Weak IPO Market

6/21/11Follow @bvbigelow

There must be some way out of here, but venture capitalists around the world say the current level of initial public offering (IPO) activity is too anemic to sustain the venture capital industry in the United States and eight other countries, according to a global VC survey.

In the United States, 91 percent of the venture capitalists surveyed agreed with the softball question: “Is an active IPO market in your home country essential for the success of the venture capital industry?” You might ask yourself, “Who’s going to say no?” But the response from VCs in other countries ranged from 40 percent agreement in Israel to 88 percent in Brazil.

The 2011 Global Venture Capital Survey, conducted jointly by the National Venture Capital Association and the Deloitte accounting and consulting firm, was sent to venture capitalists in the United States, China, India, United Kingdom, Germany, Canada, France, Israel, and Brazil. Of the 347 responses returned, 48 percent were from U.S. venture capitalists and 52 percent were from VCs in eight other countries.

Among the U.S. venture capitalists surveyed, over two-thirds (68 percent) anticipate that total capital investments in cloud computing will increase over the next five years, with about one-third (31 percent) predicting that cloud computing investments will remain the same.

In the same vein, two out of every three American VCs (64 percent) expect an increase in capital funding for new media and social networking startups over the next five years, with almost a third (32 percent) saying such investments will remain the same. The survey also found that 54 percent of U.S. VCs anticipate an increase in capital funding for healthcare services, while 33 percent expect healthcare services funding to remain level.

In contrast, a majority of U.S. VCs said they anticipate that total capital investments in the telecommunications, semiconductors, biopharmaceuticals, and medical device and equipment sectors will stay at current levels or decline over the next five years.

Some other findings highlighted in the survey:

—VCs in all nine countries overwhelmingly agreed (83 percent) that the top factor needed to create a healthy and vibrant IPO market is a “healthy investor appetite for equity in public companies.” VCs also cited a stable economy (52 percent) and adequate stock analyst coverage (32 percent).

—Asked to name the most-promising stock exchanges for venture-backed IPOs over the next five years, the top five selected by surveyed VCs are: the Nasdaq exchange (87 percent); the New York Stock Exchange (39 percent); Shanghai Stock Exchange (33 percent); Hong Kong Stock Exchange (26 percent); and the London (AIM) Stock Exchange (26 percent).

—Of the global VCs that are investing outside their home country, 57 percent of those surveyed said they plan to increase this activity over the next five years. Among the U.S. VCs surveyed, 42 percent said they expected to increase their investment activity outside the United States; 30 percent anticipate that it will remain the same; and 25 percent do not invest outside their home country.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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