The New Year promises to provide a strong and stable investment climate for venture capitalists, with more competition from hedge funds and more private equity firms as buyers, say venture capitalists responding to a survey by the National Venture Capital Association. The poll also found there will likely be fewer VC funds operating next year, while alternative exit strategies will come into their own. “Alternatives will drive venture capitalists in 2007,” Mark Heesen, president of NVCA said. He suggested that if the VC-backed initial public offering market in the U.S. doesn’t open up next year, the industry will likely “leverage alternative markets and buyers for their portfolio companies.” In other findings:
- 62% of VCs say they will compete more intensely with hedge funds for deals, while 48% expect more competition with buyout firms.
- 71% say more private equity firms will be buyers of their portfolio companies.
- 69% predict total investment levels of $20-29 billion, while the rest expect levels in the $30-39 billion range.
- 93% of those polled say the rate deal activity will rise in China and 92% said the same for India. Increases are also seen in Eastern Europe (59%) and other Asian countries (61%), while 15% expect declines in Israel; 13% in Canada; and 13% in Western Europe.
- In terms of sector, 70% of VC see deal flow increases in Internet specific companies and 69% in media and entertainment, with only 9% predicting growth in semiconductors and 23% in software.
- 78% of respondents say mergers and acquisitions will be the exit of choice, with 22% expecting a decline in that strategy.
- 57% believe there will a greater propensity for U.S. venture-back companies to consider overseas IPOs in 2007, 47% of those surveyed believe will be fewer “brand name firms” operating, while 43% see an increase in industry-focused fund and 42% an rise in emerging funds.