Venture capital outlook for 2010
By Rieva Lesonsky
The National Venture Capital Association (NCVA) has just released its outlook for the state of venture capital in 2010. The annual predictions survey, Venture View 2010, polled more than 325 VCs across the U.S. What are some of the predictions?
Most respondents expect more venture capital to go to more companies in 2010. Sixty-three percent of all respondents believe the dollar amounts of venture investment will stay the same or increase from 2009 levels, with 44 percent predicting a level between $21 billion and $25 billion. Half of the respondents predict more companies will get venture financing; one-third say the number of portfolio companies will stay the same.
In terms of what stage companies will receive capital, most VCs (55 percent) expect that investment in companies at the growth equity stage will increase; 53 percent expect an increase in later stage investing; and 49 percent foresee an increase in expansion stage investing. The outlook isn’t as good for investment in younger companies; just 45 percent of VCs surveyed expect growth in early and seed stage investments.
VCs also predict a shakeout in the industry, with 90 percent of them saying the number of venture capital firms will decrease over the next five years. Most of those respondents say the industry will shrink between 1 and 30 percent.
“It is readily understood by the venture capital community that our industry will shrink in size going forward,” said Mark Heesen, president of the NVCA. “That will mean fewer firms, for sure, but not necessarily fewer companies funded. There is a great deal of innovation taking place and venture capitalists who have the track record to raise funds will be well positioned to build companies. Most venture capitalists will agree that a smaller industry is a better one.”
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Interesting to note at what stage strategists are predicting money will flow to companies. With only 45% of VCs expecting investor growth in startups, it’s more important than ever that new small businesses have a clear growth plan including a standardized service offering that VCs can grasp quickly. Former Inc. Magazine editor and entrepreneur John Warrilow does a good job of explaining this in his new book Built to Sell: Turn Your Company into a One You Can Sell. I’d also add “And One that VCs Want to Invest In.