Washington Venture Capitalists Brace for the Worst Between Now and Year’s End

10/28/08Follow @gthuang

OK, this isn’t all that surprising. In the early days of the fourth quarter of 2008, the majority of Washington state’s venture capitalists see the national economy as the top issue facing their portfolio companies, and they’re predicting lower revenue growth and lower valuations for all companies—and no exits.

That’s according to the latest quarterly venture capital outlook survey from the Washington Technology Industry Association (WTIA), which was released today. The survey asks local VC firms about their deal quality and quantity, expected exits, and the financial status of their portfolio companies.

Here are a few lowlights from the survey:

—76 percent of venture capitalists view national business conditions as one of the top challenges facing their companies. That’s up from 43 percent heading into the third quarter of this year (which began July 1).

—One-third of VCs expect revenue growth for their companies to be moderately or substantially lower in the fourth quarter, compared to 14 percent who felt that way heading into the third quarter.

—VCs expect lower deal valuations for companies, regardless of whether they are early, mid, or late-stage. For mid-stage companies, for instance, 88 percent of respondents expect valuations to shrink, compared with 14 percent just three months ago.

—75 percent of respondents expect no growth in hiring of Washington workers between now and the end of the year, with 13 percent expecting a hiring increase. Just three months ago, 57 percent predicted a hiring increase.

—38 percent of VCs expect deal flow to actually increase moderately in the fourth quarter, but 38 percent also expect that moderately to substantially fewer deals will close by the end of the year.

—No exits (IPOs) are expected between now and the end of the year.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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