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Survey: Venture capitalists' spirits perk up

The latest Silicon Valley Venture Capitalist Confidence Index shows a rise, after hitting a 5-year low the previous quarter.

This was originally posted at ZDNet's Between the Lines.

Venture capitalists are becoming slightly more upbeat about the economy and market, according to the latest read from the Silicon Valley Venture Capitalist Confidence Index, which was released Wednesday.

The ongoing survey of VCs in the San Francisco Bay Area found that venture capitalist confidence registered a 3.03 on a 5-point scale (5 shows high confidence). The first-quarter read was up from the fourth quarter's tally of 2.77, which was a five-year low. (See report overview, PDF).

Trend line of Venture Capitalists' Confidence
Silicon Valley Venture Capitalist Confidence Index

Is it party time? Not quite.

University of San Francisco professor Mark Cannice writes:

This mustard seed of hope appears to be taking sprout among a majority of the venture capitalist respondents who provided their insight to the March 2009 survey. And it is nurtured by venture capitalists' faith in the resilience of entrepreneurs to build efficient enterprises with disruptive solutions, more modest expectations for growth and valuations, and the early stages of a stabilization in the financial system. Most importantly, this hope is leading to a more optimistic climate and new investments, with numerous VCs believing that great companies tend to be launched in difficult economic environments. As venture capitalists take a long term perspective in shepherding their portfolio firms over years rather than quarters, investments made today are expected to grow and blossom on the other side of the current economic malaise. The modest but measurable uptick in confidence in Q1 breaks the extended decline and provides an important step toward new entrepreneurial growth opportunities.

Judging from the VC comments collected by Cannice it appears that:

  • VCs think the global economic crisis has stabilized.

  • But the economy is still an overhang.

  • Great companies will emerge in the economic wreckage.

  • And investments are like roach motels: There are no exit strategies.