“While anecdotally we have been hearing about ‘light at the end of the tunnel’ from venture capitalists and CEOs alike, this year’s survey reminds us that we are not out of the woods yet,” said Heesen. “Ongoing uncertainty surrounding the fiscal cliff clearly impacted respondents’ outlooks for the coming year. The influence the federal government has over the growth or stagnation of our industry has never been greater. Lawmakers need to understand that their brinkmanship politics is hurting the entrepreneurial ecosystem, which has been grasping for positive news for the last four years. The potential for growth is palpable, with positive forecasts for startup jobs, technology innovation, and global activity. But to realize this promise we must get on the right track in
Washington, and quickly.”
The seventh annual Venture View survey reflects predictions from more than 600 venture capital professionals and CEOs of venture-backed startup companies in the U.S. collected between November 26 and December 7, 2012.
Optimism Shifts Within Information Technology from Consumer to Business and Healthcare
Most venture capitalists predict investment increases in Business IT (61 percent of respondents), Healthcare IT (57 percent), and to a lesser extent Consumer IT (35 percent), the latter being the sector of greatest expectations last year. Most VCs see decreases in clean technology investment (61 percent of respondents), medical devices (53 percent) and biopharmaceuticals (49 percent). Consumer IT is most often predicted as ripe for overfunding in 2013 with 62 percent of all VC respondents citing the sector. Medical Devices is most often predicted as underfunded with 49 percent of VCs saying so.
With regard to venture investment overall, CEOs are far more bullish than VCs with 43 percent forecasting increases compared to 27 percent of VCs who expect levels to rise. These expectations are slightly lower than last year when 45 and 32 percent of CEOs and VCs thought levels would increase respectively.
CEOs Set to Raise Money in 2013 Despite Challenges
Despite predictions of fewer available VC dollars, 67 percent of the CEOs surveyed plan to raise additional funding in 2013. Forty-two percent of those believe it will be more difficult; 36 percent say it will be the same as 2012; and, 22 percent think it will be easier than last year to raise capital. According to 45 percent of the venture capitalists, the hardest funding round to obtain in 2013 will be Series A. Twenty-eight percent of the VCs cite Series B as the hardest round to raise followed by Seed / Angel funding at 13 percent. Regardless, 65 percent of VCs and 56 percent of CEOs believe terms will favor VCs in 2013. Only 14 percent of CEOs and six percent of VCs expect terms to be more favorable to entrepreneurs in the coming year.
Global Activity Will Increase for Startups; VCs Bullish on Latin America Latin America is cited by 55 percent of VCs as an area of increasing U.S. investment in 2013 followed by China (40 percent) and India (37 percent). Fifty-five percent of VCs predict there will be U.S. investment decreases in Western Europe, followed by Eastern Europe (36 percent) and Japan (30 percent).
On the company front, of the CEOs surveyed 66 percent are planning to increase their global activity with just two percent pulling back globally. Sixteen percent do not have global operations and 15 percent will maintain their current global activity levels.
More Optimism for Acquisitions Than IPOs Next YearVCs are more optimistic than CEOs regarding the exit market. Forty percent of VC respondents expect 2013 total IPO volume to increase and 52 percent believe that IPO quality will improve. This compares to just 29 percent of CEOs who believe IPO volume will increase and 37 percent who see better overall quality ahead. While VCs expect fewer life sciences (42 percent) and clean tech (57 percent) IPOs, many see better quality IPOs in technology (50 percent), life sciences (39 percent), and clean tech (28 percent) in 2013.
VCs and CEOs agree that acquisitions will be more prevalent in 2013 with 62 percent of both respondent bases predicting volume increases next year. Much of this volume will be driven by technology acquisitions with 63 percent of CEOs and 60 percent of VCs expecting more transactions within this sector. Overall acquisition quality is expected to improve in 2013 by 35 percent of CEOs and 40 percent of VCs.
Half of the CEO respondents would consider being acquired in 2013 while seven percent would consider going public next year.