Silicon Valley Venture Capitalist Confidence Index® Falls Sharply in Q3

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New research by University of San Francisco Professor Mark Cannice reveals a dip in confidence levels among venture capitalists (VC).

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Mark Cannice

Patience, discipline, and vision will be needed to navigate what appears to be a current mismatch in private valuations, public market receptivity, fundraising and investment.

The Silicon Valley Venture Capitalist Confidence Index® registered 3.39 on a 5 point scale in the third quarter of 2015 (5 = high confidence). This is a significant decline from the previous quarter’s index reading of 3.73, and the index's lowest level in nearly 4 years.

This is the 47th consecutive quarterly survey and research report, which provides 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 study.

“The growing sense of inflated valuations for some venture-backed firms, along with a lackluster IPO market, makes for a challenging business model for the venture industry," said Cannice.

For example, Paul Holland of Foundation Capital observed that "persistent high prices for private financings have failed to synch up with significant softness in the public and exit markets." And Cindy Padnos of Illuminate Ventures indicated, "The recent high valuations of many later stage venture-backed companies is based less on performance than on market demand for growth investments. This makes them susceptible to overall market volatility, which is something they cannot really influence, let alone control."

The impact of non-traditional investors in venture-backed firms may be exacerbating the inflated valuation problem. Karan Mehandru of Trinity Ventures explained, “The gap between public and private technology company valuations is massive. Furthermore, the level of risk that late stage private investors are underwriting is unprecedented and, arguably, unwarranted in many cases.”

Despite these issues, high-quality ventures continue to attract investment. Roy Thiele-Sardina of HighBar Partners said, “We continue to see high-quality ideas and companies looking for funding. Many have initial traction before looking for funding.” Bob Bozeman of Eastlake Ventures added, “The opportunities being funded are increasingly worthwhile.”

Cannice concluded his report saying, “Patience, discipline, and vision will be needed to navigate what appears to be a current mismatch in private valuations, public market receptivity, fundraising and investment. Despite what may be near term challenges in financial metrics and cash flows, the powerful Silicon Valley ecosystem for new venture creation and innovation remains intact.”

Media Contact: Gary McDonald, Univ. of San Francisco Media Relations, 415.422.2699, mcdonald(at)usfca(dot)edu

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Anne-Marie Devine Tasto

Anne-Marie Devine Tasto
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