Venture Capitalists’ Confidence Slips Slightly in Third Quarter of 2004, According to USF Index.

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The University of San Francisco Silicon Valley Venture Capitalist Confidence Index released today came in at 4.05 on a 5 point scale for the third quarter of 2004. This reading is slightly down from the first and second quarters when it came in at 4.3 and 4.1 respectively, but still suggests a high level of Bay Area financings and entrepreneurial activity in the coming months.

The University of San Francisco Silicon Valley Venture Capitalist Confidence Index released today came in at 4.05 on a 5 point scale for the third quarter of 2004. This number is slightly down from the first and second quarters when it came in at 4.3 and 4.1 respectively, but still suggests a high level of Bay Area financings and entrepreneurial activity in the coming months.

The USF index measures and reports the opinions of professional venture capitalists in their estimation of the high growth venture entrepreneurial environment in the San Francisco Bay Area over the next six to 18 months. The third quarter results are based on an October 2004 survey of 50 San Francisco Bay Area venture capitalists.

Mark Cannice, co-creator of the USF index, attributes this quarter’s investor confidence to the assessment of real business factors including: strong M&A momentum, low overhead costs, increasing number of start-up activities, and the perception that more Asian, especially Chinese, companies are coming to the United States to seek capital, while many mid-cap U.S. companies are seeking opportunities in Asian markets.

However, compared with the first two quarters of 2004, some venture capitalists are less upbeat about the economy due to its slow recovery, uncertainty around the presidential election, cautious corporate spending, and concerns among large companies about doing business with start-ups. The first quarter brought expectations of improvement in the initial public offering market and the macroeconomic picture. Those have faded through the summer as the economy hit a “soft patch.”

“While there does seem to be a lot of activity, the economy also feels dampened while people wait to adjust accordingly based on their political views and the outcome (of the presidential election) in November,” said Brendan Richardson of Vision Capital.

Similarly, Mohanjit Jolly of Garage Technology Ventures offered, “Essentially, the spending environment —and I am speaking purely from an IT standpoint— is still fairly tight, with concerns among large enterprises about doing business with upstarts.”

VC companies that participated in the current survey include:

3I                         J. Sanford Miller

Acorn Campus                 T. Chester Wang

Asset Management Company     Skip Fleshman

August Capital                 David Hornik

BA Venture Partners         Eric Sigler

BA Venture Partners         Sharon Wienbar

Bay Partners                 Dino Vendetti

Canaan Partners                 Wende Hutton

Claremont Creek Ventures     Randy Hawks

Compass Technology Partners    David G. Arscott

Cresendo Ventures         Andy Brooks

Crosslink Capital, Inc.         Dave Epstein

De Novo Ventures         Joe Mandato

Diamondhead Ventures         Peter Wolken

Dominion Ventures         Michael K. Lee

Dynasty Capital Services     Randolph L. Tom

East Peak Advisors         David A. DeRuff

El Dorado Ventures         Charles Beeler

Garage Technology Ventures     Mohanjit Jolly

Geneva Venture Partners         Robert Troy

Globespan Capital Partners     Venky Ganesan

Granite Ventures         Standish O'Grady

Institutional Venture Partners Steve J. Harrick

Mayfield                 Thomas D. Fountain

Morgenthaler Ventures         Bob Pavey

New Enterprise Associates     Stewart Alsop

Nokia Venture Partners         Kwan Yoon

Novus Ventures, L.P.         Henry Wong

NTH Power Techonologies         Bryant J. Tong

Onset Ventures                 Shomit Ghose

SBV Venture Partners         Graham Burnette

SBV Venture Partners         Jacques Vallee

Selby Ventures Partners         Robert C. Marshall

Selby Ventures Partners         Marco DeMiroz

Sigma Partners                 Gregory Gretsch

Skyline Ventures         Stephen Sullivan

TechFund Capital         Kurt Keilhacker

U.S. Venture Partners         Casper de Clercq

U.S. Venture Partners         Anonymous

Vision Capital                 Brendan Richardson

Vision Capital                 Dag Syrrist

9 respondents wished to remain anonymous    

The index, published every quarter, is co-authored by Mark Cannice and Roger Chen, professors at the USF School of Business and Management. Please find the full report at: http://www.usfca.edu/sobam/nvc/cindex_3_2004.htm

For more information, media may reach Mark Cannice (Cannice@usfca.edu) or at cell: (650) 483-6846, or w: (415) 422-6785; or Roger Chen (chenr@usfca.edu) or at w: (415) 422-6546 or cell: (650) 269-7723. Otherwise, reach Monica Leifer, USF assistant director of media relations, at (415) 422-2697.

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Mark Cannice