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Silcon Valley Business Journal | “VC confidence rebounds as late-stage venture competition eases”

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Silicon Valley Business Journal, By: Cromwell Schubarth | Posted: 4 Feb 2016

Logo_SVBJVenture investors may be taking hope in the dwindling interest in their portfolio that they are seeing among hedge funds, private equity and mutual fund investors.

VC confidence ended a three-quarter slide at the end of last year, according to a quarterly survey done by Mark V. Cannice, a professor at the University of San Francisco.

“VCs tend to see hope when there is a bit of panic and have caution when the punch bowl is full,” Cannice told me, explaining that his survey of investors looks ahead at what they think is coming in the next six to 18 months.

Recent reports on startup investing in the fourth quarter and start of this year indicate that fewer deals are being done while valuations and amounts invested are dropping slightly.

A 5-point index from the survey, where 5 indicates high confidence, came in at 3.59 in the fourth quarter. That’s up from a three-year low of 3.39 in the third quarter but below recent highs above 4 in 2013 and 2014.

Venky Ganesan of Menlo Ventures and chairman-elect of the National Venture Capital Association said the late stage market has been due for a correction, urging, “Caution ahead!”

“The heady cocktail of easy money due to the Fed, high burn rates, and questionable gross margins is going to give a massive hangover to a bunch of companies,” Ganesan said in the report. “We will see a pullback in late stage financings and even some layoffs, but the long-term value proposition of technology driven change remains intact.”

“The public markets cannot possibly absorb the current batch of unicorns at their current valuations, not to mention the thundering herd of unicorn wannabes,” he said. “There will be more disappointment than celebration over the next 18 months. Still, there is plenty of room for creating real value and building great companies. We just need to adjust expectations.”

Dixon Doll, DCM founder emeritus, said, “In this frothy environment with way too many unicorns and public markets receding, I’m long-term optimistic … short term pessimistic because of contracting liquidity alternatives.”

Bob Ackerman of Allegis Capital wrote, “All that glitters is not gold and the hens of excess are coming homing to roost. The massive influx of outside capital into the venture ecosystem, which has inflated a broad spectrum of valuations, has once again validated the ‘Greater Fool Theory.” The venture community is actively pulling in its investment horns which will reinforce the inevitability of the correction. The good news – with the reset come excellent opportunities for those that know the difference between FeS2 and Au.”

“VC confidence rebounds as late-stage venture competition eases.” Silicon Valley Business Journal, 4 Feb 2016. Web. 5 Feb 2016.