General caution on the venture capital environment appears to be easing, according to Mark Cannice at the University of California, who assembles the index.
The Silicon Valley Venture Capitalist Confidence Index grew for the fourth quarter of 2015, ending a three-quarter decline in confidence. The index rose to 3.59 on a five-point scale from 3.39 in the third quarter.
With regard to valuations, a return to the mean appears to be underway, the survey reports. “The late stage venture market is due for a correction. The heady cocktail of easy money due to the fed, high burn rates, and questionable gross margins is going to give a massive hangover to a bunch of companies,” said Menlo Ventures’ Venky Ganesan, one of the venture capitalists interviewed for the index.
Unicorn valuations are still a concern.
“As I said last quarter, the public markets cannot possibly absorb the current batch of unicorns at their current valuations, not to mention the thundering herd of unicorn wannabes. There will be more disappointment than celebration over the next 18 months,” said Bill Reichert of Garage Technology Ventures.
However, the report notes the VC community’s shift in focus towards the fundamentals of venture investing appears to be unseating fears of inflated valuations. “Whilst there will be a major correction of the inflated valuations of Unicorns, a lot of solid companies are created and funded every week based on solid fundamentals such as customers, revenues and profits,” said Gerard van Hamel Platerink of Redmile Group.
The confidence index is calculated from a December 2015 survey of 30 San Francisco Bay Area venture capitalists.
The index report can be found here
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