The confidence level of Silicon Valley venture capitalists slipped in the first quarter.
The Silicon Valley Venture Capitalist Confidence Index is now at 3.81, declining slightly from 3.93 in the previous quarter’s reading. The index is a recurring quarterly survey of San Francisco Bay Area/Silicon Valley venture capitalists. The first-quarter survey was conducted on March 15.
According to Prof. Mark Cannice of the University of San Francisco, which conducted the survey, “While enthusiasm remained for the current momentum of the private and financial markets and the pace of technology innovation and adoption, a growing chorus of concern over valuations of some venture-backed firms is becoming apparent.” Prof. Cannice noted that a contributing factor to the concerns of overly generous valuations is the alternative funding sources that increase the available supply of financing for new ventures.
The concern seems to be that while a company may have an easy time getting funding, that doesn’t necessarily mean that the firm has the requisite business metrics found in those of a typically sound business model.
Many of the Silicon Valley VCs are focused on technology platforms and biotechnology investments.
Even though there’s strong overall capital availability, and the open window in IPOs as an exit strategy doesn’t look like it will close anytime soon, not to mention the possibility of M&A activity as another exit option, VCs surveyed voiced concern over growing valuations. One respondent summed up the main concern about growing valuations “becoming disconnected from business risk.”
Another survey respondent said, “Although the underlying fundamentals driving innovation in Silicon Valley remain strong, the current hyper inflation in late stage private company valuations is a troubling sign.” And one other VC observed that “valuations and round sizes for Series A and beyond have grown much more significantly. It’s a good time to remember the value of valuation discipline, early capital efficiency and strong reserves.”