State of the VC Industry

We recently surveyed over 1000 venture capitalists to get their opinion on the state of the industry. Ninety-eight percent of the respondents were either Partners or Managing General Partners at VC firms throughout the country. The mood was considerably better than what we observed in the same time frame last year. This is not a surprise as we had hit rock bottom on the confidence scale in March 2009.

That being said there is plenty of conflicting data and lots of opinions on what is going on. Brian Hughes with KPMG LLP recently published a summary report on their survey associated with Venture Summit East 2010 titled Optimism in the Northeast. The Wall Street Journal on the other hand posted an article on July 19, 2010 titled Venture Capital Could Shrivel Away.

The truth is probably somewhere between the two themes and we won’t really know until we can do a post mortem in the future.

My sense is that we’ll all be kicking ourselves in 2020 for not having bought GE at 14, the waterfront condo in Florida for $135,000 and invested in at least 10 series A technology deals! However, it takes a strong spine and a lot of self-confidence to make these investments in the environment we find ourselves in today with the mixed economic signals and the daily gyrations of the Dow.

The survey told us that Consumer Internet/Web 2.0, Cleantech/Energy and Internet Marketing will be the top areas for the VC industry. No surprise here as the next generation of innovators and entrepreneurs have grown up with the internet and care deeply about the environment – so let’s back them.

VCs recognize that Innovation is what we do best as a nation. We are no longer the best or lowest cost manufacturer – we lost that battle a while back. But we do produce some of the brightest technical minds in the world every year and that group of talent will be leading the charge. The venture community knows that and the best firms are all over the research labs and technology transfer offices of our best universities.

And, oh yes, we did ask if the VC industry was still broken. The majority said yes but the confidence level was high and we spoke with many VCs who said that it continues to get better. This is encouraging as the creation of new companies and technologies are at the heart of driving economic growth.

You can see the full results of the survey by visiting http://www.polachi.com/

Charley Polachi is founder of Polachi & Co., a provider of executive search services to high-tech companies and their investors. You can read his past peHUB posts here