VCs Say Animal Spirits May Return

TechFlash reports: A new survey released today from the Washington Technology Industry Association indicates that venture capitalists are becoming slightly more optimistic. That shouldn't come as a big surprise since the Dow has been hovering around the 10,000 range and a few initial public offerings and M&A deals have given VCs new hope.

More than 20 percent of respondents said that deal-flow quality and quantity would improve in the fourth quarter, while the venture capitalists also noted slight improvements in company valuations at the early and middle stage.

Sharp decreases in layoffs at portfolio companies also were predicted for the fourth quarter. During the third-quarter forecast, half of the venture capitalists predicted layoffs of 10 percent or more. For the fourth quarter, only 11 percent said that their companies would cut staff that drastically.

We've been tracking layoffs at technology companies in the state, and they do appear to be slowing down. But it is not like there's a hiring boom just around the corner either.

The vast majority—more than 80 percent—said workforces would stay the same at portfolio companies, according to the survey.

“It’s encouraging to see the venture community predict a slowdown in company layoffs, and to also see a gradual improvement of valuations for both mid- and late-stage deals,” said WTIA president and CEO Ken Myer in a statement. “We appear to have reached a point of stability, with job losses expected to slow yet hiring not projected to increase. Hopefully, we are turning a corner, but concern remains given the slow economic recovery and the impact on company sales.”

The exit markets still remain relatively closed. Eighty-nine percent of respondents said that they do not expect a portfolio company to be acquired or go public in the fourth quarter.

The survey follows reports from earlier this month which showed a downturn in venture capital investing during the third quarter when compared to last year.

The MoneyTree Survey tracked 22 deals totaling $181 million during the third quarter. That compared to 37 deals totaling $228 million for the same period last year.