An uptick in fund-raising and a more welcoming IPO market lifted spirits in the first quarter, boosting the Silicon Valley Venture Capitalist Confidence Index to 3.91. That’s an increase from Q4, when the index stood at 3.75, and is also the highest score in three years. The index — which ranges from a low of 1 to a high of 5 — has increased steadily since hitting a low point in Q4 2008.
“We’ve turned the corner,” says Mark Cannice, a University of San Francisco professor and author of the index. “All aspects of the VC model seem to be doing well.”
Cannice says that the combination of more abundant fund-raising, better conditions for IPOs and a steady appetite for startup M&A is strengthening the hand of venture capitalists. Many GPs also are excited about the pace of technology development in areas such as cloud computing, social media and mobile computing.
The positive trends should continue through the year, he says.
The index was based on a March survey of 33 venture capitalists based in the San Francisco Bay Area. (See a list of the participants below.)
The improved exit environment has Igor Sill, managing director of Geneva Venture Partners, feeling more optimistic.
“Following the IPO freeze of 2009, things were reinvigorated with the 152 IPOs filed in 2010,” Sill wrote in the survey. “That trend continues with 2011’s pipeline, but I believe the true opportunities lie within the highly anticipated M&A side. Acquisitions of venture-backed companies in 2011 are on a record pace, providing liquidity and strong returns for venture investors. This activity, along with a slowly strengthening economy, should result in strong investor returns throughout 2011.”
Still, many VCs remain cautious. Bob Ackerman, managing director and founder of Allegis Capital, is among them. “Venture Capitalists have invested almost $15B more than they have raised over the past three years,” Ackerman wrote in the survey. “This trend is not sustainable and will have [a] negative impact on the ability of start-ups to raise capital if it is not reversed.”
Ackerman added: “When combined with intensive competition for engineering resources, there are some significant challenges in moving entrepreneurial innovation from concept to implementation.”