VCs More Concerned About Capital than Economy, Says WTIA Report

1/15/09Follow @gthuang

As expected, the economic downturn is hitting venture capital hard. The top challenge for Washington state VCs for the first quarter of 2009 will be the availability of capital—ahead of the national economy and overall market growth.

That’s according to the Washington Technology Industry Association’s Q1 2009 venture capital outlook survey. The quarterly survey tracks local VC firms’ indicators of deal quality, quantity, expected exits, and business metrics for their portfolio companies.

The outlook for deal flow and valuations is fairly bleak. No venture capitalists surveyed predicted growth in valuations would be similar with the last quarter in any stage of new investments. However, 44 percent of VCs did predict moderately better deal quality this quarter.

As for their portfolio companies, two-thirds of respondents predicted their companies’ revenue growth would be moderately or substantially worse than in the fourth quarter of 2008. And unlike last quarter, when most VCs predicted no major changes in hiring, 54 percent now predict a decrease of at least 10 percent. Lastly, no IPOs are expected this quarter, but one-third of the VCs surveyed predicted at least one of their portfolio companies would be acquired.

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. Follow @gthuang

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