Venture Capital Confidence Inches Higher In 3Q

Confidence over business conditions in Silicon Valley’s venture capital community rebounded slightly in the third quarter despite worries about stubbornly high private-company valuations, according to the Silicon Valley Venture Capitalist Confidence Index.

The index rose to 3.53 from 3.47 in the second quarter. It had slipped from 3.79 in the first quarter.

The index is calculated on a scale of 1 to 5 with 5 indicating high confidence and is based on interviews with 31 area venture capitalists. It is released by University of San Francisco Professor Mark Cannice.

VCs interviewed said they saw attractive opportunities in the continuing technology trends of cloud computing, big data and the mobile Internet. “The IPO market remains open for high quality issuers, like Palo Alto Networks, and the strategic exit environment remains health as legacy vendors put their cash to work acquiring innovation,” said Jeb Miller, a general partner at Jafco Ventures.

Some, such as Dan Lankford, a managing director at Wavepoint Ventures, pointed to interesting trends outside the current limelight, such as smart grid and energy efficiency.

However, valuations brought the enthusiasm down to earth. “Many deals are overpriced with poor risk adjusted returns,” said Elton Sherwin, a senior managing director at Ridgewood Capital. “Deals that would have historically been priced at $5 million believe they are worth $15 million…” The unsteady worldwide economy and this year’s presidential elections increased uncertainty.

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