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Venture capitalists brace for grim 2009
AFP - 1 hour 15 minutes ago
SAN FRANCISCO (AFP) - - The coming year threatens to challenge the survival skills of startups and venture capital firms alike, but superstars may rise in 2010 from the world's scorched economic landscape.
Such was the sentiment reflected on Wednesday in the results of an annual "predictions survey" of members of the National Venture Capital Association.
A survey of some 400 US venture capitalists (VCs) between November 24 and December 12 revealed that most expect Darwinian forces to be brutal for fledgling businesses and their investors in the coming year.
"We think things will be better in 2010 after a very rotten 2009," said association president Mark Heeson.
"The operative word is 'survive.' Venture capitalists in general think 2010 will be an important year in that there will be many phoenixes rising from the ashes of 2009."
Investors see startups in clean fuel and biotechnology industries poised for starring roles in the evolving global economy.
For the coming year, though, investment in startups is expected to wane as venture capitalists channel more cash to supporting young companies they are already backing.
Venture capitalists typically get returns on their investments, and free up cash to put into new enterprises, when startups go public with stock offerings.
The market for initial public offerings is among the victims of the financial crisis.
Only six US companies have gone public this year as compared with 86 doing so in 2007, according to Heeson.
Ninety-two percent of the surveyed venture capitalists predict investment will slow by 10 percent or more in 2009, dropping from the 30 billion dollar annual figure of recent years to below 27 billion dollars.
More than half of the VCs, however, expect to invest as much next year as they have this year, the survey shows.
Shrewd VCs realize that tough economic times have proven to give birth to winning companies, according to Heeson.
"Entrepreneurs out in a difficult time are not tourists," Heeson said.
"These are driven individuals who believe strongly in their ideas and are extremely disciplined. These folks do get funding. Some of the best companies around are funded at the real low points in our economy."
The consensus among VCs is strong that investment next year will tank in the hard-hit semiconductor, media, and wireless communications industries.
VCs predict the slowdown in investment will be global, with the outlook particularly grim for Europe.
"2009 will be a year of anticipation for the venture capital industry as the economic turmoil will engender a fair amount of Darwinian change," Heeson said.
"The recession and shuttered IPO market will place tremendous pressure on portfolio companies to tighten their belts and re-tool. That said ... there is no recession on innovation and great ideas will still get funded."
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National Venture Capital Association (NVCA) logo. The coming year threatens to challenge the survival skills of startups and venture capital firms alike, but superstars may rise in 2010 from the world's scorched economic landscape.
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