SOURCE: National Venture Capital Association
December 17, 2007 08:00 ET
Venture Capitalists Predict 2008 Trends
NVCA Annual Survey Forecasts CleanTech Upswing, Departing Firms, and More IPOs for the Coming Year
WASHINGTON, DC--(Marketwire - December 17, 2007) - Venture capitalists are forecasting an
active year for the industry with high growth in the CleanTech sector, an
improving IPO market and fewer venture firms in 2008. These predictions
are among the top line findings of the NVCA 2008 Predictions Survey. The
results also show concerns about global investments in certain regions
including China. Additionally, the industry believes fund sizes will
become larger and returns for limited partners of venture capital funds
will improve in both the short and long term horizons.
"For venture capital firms, 2008 will be the year we begin to see larger
funds raised at a faster pace, as many firms in the industry will focus on
sectors that have increasing capital requirements such as life sciences and
clean technology," said Mark Heesen, president of the NVCA. "These sectors
will not be exclusively U.S.-based, but have a world-wide platform which
will require more time and more capital than ever before. That said, the
other end of the spectrum -- seed and early stage investment and smaller,
regionally focused firms -- will also be very active, particularly in the
Internet and new media spaces. By its very nature, venture capital
investment is long term so the ultimate winning strategy won't be clear for
some time," Heesen added.
The NVCA survey was conducted in early December and includes the
predictions of more than 170 venture capitalists from across the United
Venture capitalists are predicting moderate investment growth next year
with 71 percent of respondents pegging 2008 venture investment levels to be
between $20-29 billion, with the average forecast at $27 billion, which
would be on par with 2007 investment levels. A quarter of the respondents
predict venture capital investment will be higher, in the $30-39 billion
Venture capitalists overwhelmingly predict (80 percent) that the CleanTech
sector will attract higher levels of venture financing in 2008. However, 61
percent of respondents also believe that the CleanTech sector will be
overvalued next year. Other sectors of growth include media and
entertainment (65 percent predict higher levels), biotech, and Internet
specific companies (55 percent respectively). Investment in the medical
devices and wireless telecom are expected to grow moderately with more than
half the respondents predicting static or declining investment in these
sectors. Fifty percent of venture capitalists predict a decline in
semiconductor investing while 21 percent see declines in software.
Accordingly, both industries are projected to be undervalued in 2008.
In terms of international investing, while there is a general assumption
that global markets will continue attracting U.S. venture dollars, domestic
venture capitalists are skeptical about quality deal opportunities in
pockets of the world. Thirty-seven percent of respondents say they are
leery about investing in South America while 28 percent are hesitant to
invest money into China next year. Eastern Europe also causes concern for
17 percent of the venture capitalists surveyed.
Venture Capital Fundraising
Most respondents believe the industry will consolidate further in 2008 with
57 percent predicting the number of venture firms will decrease next year.
Those that remain will be raising the same size or larger funds according
to 84 percent of venture capitalists polled. Only 16 percent believe funds
will be smaller next year.
Venture-Backed Exits -- IPOs and Acquisitions
While 59 percent of the venture capitalists are predicting further IPO
market recovery, 44 percent see that recovery taking place at the same or a
slower pace than 2007. Twenty-two percent see a flat IPO market and 19
percent believe the market will weaken for venture-backed companies.
Most venture capitalists still see the U.S. exchanges as holding the
greatest promise for venture-backed company listings. Seventy percent
cited NASDAQ as holding the most potential for venture-backed listings in
2008; 19 percent say AIM has most promise; followed by the Hong Kong (16
percent) and Shenzhen Exchanges (15 percent).
In the acquisitions market, the venture industry is split on how deal
values will trend. Thirty-five percent say valuations will be higher; 27
percent say lower; and 38 percent say they will remain the same. However,
the majority of respondents (55 percent) believe deal volume will increase.
Alternative Asset Performance
When asked about short term performance of other alternative asset classes,
large majorities of respondents forecast a dip in returns. Venture
capitalists overwhelmingly agree that short term performance will decline
in the real estate (78 percent), buyout (70 percent), and hedge fund (73
percent) industries. However, most are optimistic about short term venture
returns. Seventy-seven percent of venture capitalists believe their
industry's short term performance will improve.
A significant number of survey participants predict declines in the long
term performance of the buyout and hedge fund industries. Forty-three and
51 percent predict declines in these respective industries over the long
term. However, forty-seven percent of the respondents say real estate long
term returns will improve. Also, most venture capitalists are optimistic
about the venture industry's long term performance with 80 percent
predicting an improvement in the next 5 to 10 years.
U.S. Economic and Political Predictions
With a sharp eye on the future, venture capitalists have a unique view of
national economic and public policy. On the economic front, venture
capitalists are skeptical for 2008. When asked about the state of the
U.S. economy, 60 percent believe it will decline, 21 percent predict it
will stay the same and 19 percent are betting on an improvement. However,
60 percent of venture capitalists say the sub prime credit woes will be
contained in 2008.
Fifty-five percent of respondents expect the price of oil to be above $92
per barrel next December with 41 percent calling for oil prices below $92.
Additionally, 61 percent of venture capitalists believe the value of the
U.S. dollar will remain the same or decline with 39 percent forecasting an
increase in value in 2008.
Looking ahead to the U.S. presidential election, 39 percent of respondents
predict Hillary Clinton will be voted into office followed by Rudy Giuliani
(21 percent), Barack Obama (16 percent), and Mitt Romney (11 percent).
For survey charts and highlights as well as a compilation of NVCA member
predictions on exits, investments and other venture-related forecasts,
please contact Emily Mendell at firstname.lastname@example.org.
The National Venture Capital Association (NVCA) represents approximately
480 venture capital and private equity firms. NVCA's mission is to foster
greater understanding of the importance of venture capital to the U.S.
economy, and support entrepreneurial activity and innovation. According to
a 2007 Global Insight study, venture-backed companies accounted for 10.4
million jobs and $2.3 trillion in revenue in the United States in 2006. The
NVCA represents the public policy interests of the venture capital
community, strives to maintain high professional standards, provides
reliable industry data, sponsors professional development, and facilitates
interaction among its members. For more information about the NVCA, please