Silicon Valley Venture Capitalists’ Confidence in Future High Growth Venture environment Declines to Lowest Level in Over 2 Years

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The University of San Francisco Silicon Valley Venture Capitalist Confidence Index for the second quarter of 2006 was the lowest reading since this Index was originated in April 2004. The study, which was based on a July 2006 survey of 37 San Francisco Bay Area venture capitalists, came in at 3.89 on a five-point scale (with five indicating high confidence and one indicating low confidence), indicating a still healthy but markedly less so level of confidnece in the future high-tech growth enviornment.

The USF Silicon Valley Venture Capitalist Confidence Index for the second quarter of 2006 was the lowest reading since this Index was originated in April 2004. The study, which was based on a July 2006 survey of 37 San Francisco Bay Area venture capitalists, came in at 3.89 on a five-point scale (with five indicating high confidence and one indicating low confidence). The previous quarter's index was 4.15.

Created and authored by Professor Mark Cannice and Professor Roger Chen of the University of San Francisco School of Business and Management, the quarterly USF VC Index (Bloomberg ticker symbol: USFSVVCI) measures and reports the opinions of Silicon Valley venture capitalists in their estimation of the high-growth venture entrepreneurial environment in the San Francisco Bay Area over the next 6 - 18 months. “While this reading is not dramatically lower than some readings over the previous nine quarters, it does signal a shift from broad confidence to increasing caution among a growing number of Silicon Valley Venture Capitalists,” said Mark Cannice, executive director of the USF Entrepreneurship Program (http://www.EntrepreneurshipProgram.org).

For example, some of the responding venture capitalists pointed out potential problems in the high growth environment, such as inflated valuations and difficulties getting an investment to an exit alternative. Mohanjit Jolly of Garage Technology Ventures noted, “There seems to be a lot of frothiness in the venture market currently, especially in certain sectors like consumer internet. When valuations get to relative high double digits with revenue still 18-24 months away, you know it’s ‘bubble 2.0’. Tom Baruch of CMEA Ventures offered, “If pessimism in the public market for small technology and life sciences companies remains .. it will start to constrain activity”. Still other VCs see good deal flow and a strong environment for innovation. For example, Dave Epstein of Crosslink Capital is seeing a, “great amount of deal flow – good ideas, (and) good people…”

On the whole VC confidence remains healthy but decidedly lower than recent quarters. For comments or the complete report and trend data, please contact Professor Mark Cannice.

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