Silicon Valley VC confidence slips in Q2 ’15

Silicon Valley venture capital confidence declined in the second quarter of this year, its lowest point in two years, according to a new research report. The confidence index posted at 3.73 on a scale of 5, a drop from the previous quarter’s index level of 3.81. Increasing concern over the high valuations of VC-backed startups is cited as one reason for the decline; however, expectations for the IPO and M&A market remain strong among VCs. The report was written by Dr. Mark Cannice, a professor at the University of San Francisco School of Management.



The Silicon Valley Venture Capitalist Confidence Index® for the second quarter of 2015, registered 3.73 on a 5 point scale (with 5 indicating high confidence and 1 indicating low confidence). This quarter’s index measurement declined from the previous quarter’s index reading of 3.81 and matched its 11-year average of 3.73, its lowest point in two years.

This is the 46th 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. University of San Francisco (USF) School of Management Professor Mark Cannice, PhD, authors the research study each quarter. Cannice is department chair and professor of entrepreneurship and innovation at USF.

“While an expectation of a continued strong exit market – both initial public offerings (IPO) and mergers and acquisitions (M&A) – for venture-backed firms remained, along with an abiding confidence in the Silicon Valley ecosystem for new venture creation, increasing concern about high valuations of venture-backed firms restrained sentiment,” said Cannice. For example, Sandy Miller of Institutional Venture Partners commented, “After a surprisingly slow start, the IPO market for venture-backed tech companies has begun to accelerate. I think 2015 will finish strong and carry over in 2016.” Dixon Doll of DCM pointed to, “widely available capital, attractive valuations for companies and teams, and a strongly positive liquidity environment” for his confidence while also noting a “frothy valuation environment.”

However, Venky Ganesan of Menlo Ventures explained, “The perfect storm of mobile, social, and cloud still remains strong and augers well for the health of the tech eco-system long-term. Both seed stage and late stage venture is experiencing frothiness as the tourists have arrived and they are paying prices that the locals won’t. I expect a correction in the near term especially when the Fed raises interest rates.” Bob Ackerman of Allegis Capital shared, “The unprecedented fund raising and valuations associated with so called ‘Unicorns’ and the knock-on effects for the venture ecosystem in terms of broader market expectations around valuations, compensation, and all aspects of the costs of doing business for venture companies gives reason for substantial pause. Expectations are beginning to outpace reality.”

Cannice concluded the Q2 report writing, “While the powerful ecosystem in Silicon Valley for venture creation, innovation, and long-term value creation continues to grow stronger, short to medium-term prospects for positive investment results appear somewhat less certain.”

For the complete Q2 2015 Silicon Valley VC Confidence report, please contact Anne-Marie Devine Tasto at abdevine(at)usfca(dot)edu.

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