Cash-hungry startups beware. 2009 will likely be a terrible year for raising needed capital.
A new survey by the National Venture Capital Association paints a grim picture of probable investments next year. Ninety-two per cent of respondents predict a slowdown in US investments compared to 2008, and 61 per cent say the dip will be severe.
Venture investment in the US neared $30bn this year, and remains an important vehicle for funding early-stage companies, particularly in the technology, biotech, and clean tech sectors. But respondents say next year will be tough for any company seeking cash. Particularly hard-hit could be the semiconductor industry, media and entertainment companies, and wireless communications startups, according to the survey.
The bleak forecast is hardly surprising. Venture-backed companies have had a historically lousy 2008. Global IPO activity is down more than 50 per cent compared with 2007, according to Ernst & Young’s year-end Global IPO update. Through November, a total of 745 IPOs worldwide raised $95.3bn, compared with 1,790 IPOs during the same period in 2007, which raised $256.9bn.
The US was hit particularly hard. In the first three quarters of the year, a mere six technology and healthcare companies went public, the lowest volume since 1977. During the same period last year, 55 had staged IPOs. In the third quarter, just one venture-backed company went public.
Perennial optimists can find some nuggets of good news in the survey. More than half of the VCs surveyed said they would invest in the same or more portfolio companies next year, indicating that deal-making will continue, albeit with smaller dollar figures attached. Also, nearly half of those surveyed said investments in clean tech companies would grow next year.
But recovery will take time. Most of the VCs surveyed say they don’t expect the IPO market to reopen until at least 2010, and 81 percent expect the economy to stay the same or worsen next year.
In the meantime, don’t be surprised if some startups — and VC firms — go under. As NVCA president Mark Heesen said, “Economic turmoil will engender a fair amount of Darwinian change.”
