VCs more confident about recovery

Venture capitalists are the latest group showing more confidence in an economic recovery that will revive business, according to a quarterly survey released Thursday.

For the second quarter, the Silicon Valley Venture Capitalist Confidence Index showed an uptick, hitting 3.37 on a 5-point scale, up from the previous quarter's mark of 3.03. This is the second consecutive rise since the index dropped to a five-year low in the fourth quarter of 2008.

Based on an ongoing survey of San Francisco Bay Area venture capitalists, the index measures their confidence level in the market for initial public offerings and entrepreneurs over the next 6 to 18 months.

A report of the latest results from the June survey of 42 venture capitalists was released by its author Mark Cannice, associate professor with the University of San Francisco School of Business and Professional Studies.

"Venture capitalists expect that the worst of the financial crisis is behind us," said Cannice in his report. "While the effects of the financial market disruption on the venture industry will linger for some time, most VCs observed an increasingly determined and talented pool of entrepreneurs and a continuing march of innovation."

Although IPO funding has been scarce, the second quarter was boosted by the reopening of the market for venture-backed firms after two down quarters, noted Cannice. VCs believe their underlying business model is recovering.

Among the VCs questioned for the survey, Sandy Miller of Institutional Venture Partners said: "There has been a stabilization in the environment generally in the last two months...While we are by no means out of the woods, the tone for both entrepreneurs and investors has improved."

Kurt Keilhacker of TechFund Capital added: "There are definite signs of stabilization and hints of increased activity, especially in clean-energy sectors. Innovation is not dependent on a certain unemployment rate or stock index. Rather, innovation is often catalyzed by times of uncertainty."

Cannice noted that the lack of money has forced venture capitalists to identify and work with only the "most resilient and creative entrepreneurs." But this has instilled a sense of efficiency in these new firms, which should help them sustain over the longer haul.

VC Bill Byun of Samsung Ventures said: "In today's environment, when I meet a team of start-ups with compelling business ideas, I witness more than passion. I hear hunger to succeed and solve real problems versus testing out a business concept with an investor." Echoing that sentiment, Jim Marshall of Selby Ventures added, "Times like these truly separate the real entrepreneurs from the 'get rich quick' folks."

In summing up his findings, Cannice said in his report: "When the public capital markets right themselves fully, there will exist a healthy supply of innovative and efficient venture-backed enterprises ready to refresh their ranks."

The full report of the June survey is available at the USF Entrepreneurship Program Web site.