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Confidence levels dip among Venture Capitalists in Silicon Valley and China

The Silicon Valley Venture Capitalist Confidence Index for the third quarter of 2011, based on a September 2011 survey of 33 San Francisco Bay Area venture capitalists, registered 3.41 on a 5 point scale (with 5 indicating high confidence and 1 indicating low confidence). This quarter’s index dropped significantly from the previous quarter’s reading of 3.66 and marks the second consecutive quarterly decline in the VC Confidence Index.

This is the 31st consecutive quarterly survey and report, thus providing unique quantitative and qualitative trend data and analysis on the confidence of Silicon Valley venture capitalists in the future high-growth entrepreneurial environment. Mark Cannice, professor of entrepreneurship and innovation at the University of San Francisco (USF) School of Management, authors the report each quarter.

In the report, Dr. Cannice indicates, “a number of responding venture capitalists in the Q3 survey pointed to troublesome macro conditions, an uncertain exit environment, high valuations, and regulatory burdens.” For example, Brian Panoff of Granite Ventures indicated, “We continue to see great teams and opportunities…my main concerns would be the disconnect between private and public valuations (in certain sectors), as well as the possibility that the economy may worsen and impact the start-up world more directly.” With regards to aspects of the life science sector, Joe Mandato of De Novo Ventures pointed towards “Continued uncertainty and concern on the erratic, inconsistent and unduly lengthy regulatory process.” Cannice estimated that extended uncertainty in the macro environment could begin to have a longer-term negative impact on the venture business model in terms of funding and investments.

In a companion study on confidence among venture capitalists in China, Cannice and his co-author, Ling Ding, found that confidence in the future high-growth entrepreneurial environment in China sunk to its lowest point (3.21 on a 5 point scale) in the history of this six and a half year old on-going quarterly survey. The venture respondents as a group attributed worsening economic conditions in the US and Europe, slowing growth in China, fewer exit opportunities and sinking valuations for their declining confidence.

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