Silicon Valley VC Confidence Declines for First Time in Two Years

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New research just released by University of San Francisco (USF) Professor Mark Cannice shows a drop in confidence levels of venture capitalists. The Q3 reading is the first recorded decline in confidence in two years.

Trend line graph of venture capitalists' confidence over the last 43 quarters.

“Worries over inflated valuations and their eventual impact on the venture business model drove the decline in confidence,” Cannice concluded in his report.

The Silicon Valley Venture Capitalist Confidence Index® for the third quarter of 2014, based on a September 2014 survey of 33 San Francisco Bay Area venture capitalists, registered 3.89 on a 5 point scale (with 5 indicating high confidence and 1 indicating low confidence). This quarter’s index measurement fell from the previous quarter’s index reading of 4.02. The Q3 reading is the first recorded decline in confidence in two years.

This is the 43rd consecutive quarterly survey and research report, providing unique quantitative and qualitative trend data and analysis on the confidence of Silicon Valley venture capitalists in the future high-growth entrepreneurial environment. Mark Cannice, department chair and professor of entrepreneurship and innovation with the University of San Francisco (USF) School of Management, authors the research study each quarter.

In the new report Professor Cannice indicates that “The lower Q3 index reading raises some concern for the near to medium term outlook for the high-growth venture environment.” For example, Gerard van Hamel Platerink of Redmile Group responded, “There is a general and widely appreciated sense of frothiness in some parts of the market and many people are wondering how it will turn out.” Additionally, Jon Soberg of Expansive Ventures noted, “The ‘bubble’ talk has grown louder, especially discussion about high valuations and burn rates.”

However, many responding venture capitalists’ confidence was buoyed by the strong IPO market and rampant innovation. For instance, Sandy Miller of Institutional Venture Partners predicted, “The outlook for exits this year looks very strong.” John Malloy of BlueRun Ventures suggested, “The Valley will continue to produce major innovations in Mobile Transformation, Cloud Computing, Internet of Things (IoT), Digital Security, and Crypto Currency over the next 18 months and beyond.”

“Worries over inflated valuations and their eventual impact on the venture business model drove the decline in confidence,” Cannice concluded in his report. “However, healthy levels of investment and fundraising, rampant disruptive innovation, and VC’s belief in the determination of Silicon Valley entrepreneurs kept sentiment at a relatively high level.”

Please contact Anne-Marie Devine Tasto to request a briefing with Mark Cannice, or for the complete Q3 2014 Silicon Valley VC Confidence report.

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Anne-Marie Devine Tasto
University of San Francisco
+1 (415) 422-2697
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Anne-Marie Devine Tasto
USF
415 2799137
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