VCs Delay Return Expectations

SAN FRANCISCO, July 21 (Reuters) – Venture capitalists have delayed their expectations of when they will get returns on the money invested in start-up companies by more than a year, given the frozen public markets and slumping economy, according to a new KPMG study released on Monday.

Venture capitalists provide financing to entrepreneurs and expect to make several times their investment when these start-ups go public or are sold to a bigger competitor.

But the market for initial public offerings has been hostile to new companies this year. Not a single venture capital-backed company went public in the second quarter of 2008, a drought not witnessed since 1978, the National Venture Capital Association, a trade group, said recently.

More than two-thirds of 297 venture capitalists, bankers, entrepreneurs and corporate buyers surveyed by U.S. audit, tax and advisory firm KPMG said the market uncertainty — which has killed investor appetite for new stock offerings — means they now expect to hold on to start-ups for more than 12 months before they can take them public. Another 19 percent said they expect a delay of six to 12 months.

The KPMG study found that nearly 80 percent of those surveyed don't expect the IPO market to rebound until 2010, including 15 percent who believe IPOs will pick up in 2012.

The market turnaround will be led by public debuts of wind, solar and other clean technology companies, KPMG said.

Packy Kelly, who co-heads KPMG's venture capital practice, said investors will continue to put money into “attractive sectors, such as greentech and mobile, as they anticipate a more attractive IPO market for these companies in the near future.”

Clean technology or “greentech”, digital entertainment, mobile and life sciences start-ups will get most of the venture funding in 2009, the study found.

Within clean technology, companies working on alternative fuels, solar power, clean vehicles and wind energy will get a lion's share of the money, the study said. (Reporting by Anupreeta Das; editing by Carol Bishopric)