Survey: Most VCs Think the Industry is Broken

By June 29, 2009

More than half of venture capitalists polled by executive search company Polachi say that the industry is “broken.” “These survey results validate a cautious sentiment we have been observing for some time now in the VC industry,” said Charley Polachi, Partner at Polachi, Inc. “While we certainly acknowledge that somewhat of a reset is needed, we also believe venture firms play a critical role in the development of new technologies and start-ups, which are vital to the economy for growth,” Polachi said.

VCs are most worried about exit markets: fifty-four percent of respondents replied that they were “very worried” about when they will return, more than double the response for any other category.

“Reduced funding from investors and depressed exit prices are changing venture capital,” said Paul Margolis, Partner at Longworth Venture Partners.

“As long as these trends continue, VCs will need to be more efficient with capital and find ways to get acceptable returns at lower exit prices,” Margolis said.

The respondents’ general outlook is more positive than we might have imagined a few months ago.

Even if only forty percent replied that they are more confident about the state of the industry today than they were back then, their responses to areas they were concerned about tended to fall into the “Not very worried” and “Worried” categories instead of “Very worried.”

“Not very worried” was their main response to half of the six presented categories; “Very worried” was the number one reply to only IPO.

Despite the attention Silicon Valley gets as U.S. center of innovation, Polachi’s respondents are split on where the best investment opportunities are: 43.7 percent believe they’re in Silicon Valley/West Coast, while 40.7 percent see the best investment opportunities on the East Coast.

The biggest growth area is cleantech/energy, according to 62.8 percent of the survey’s respondents. Forty-four percent see the most potential in consumer internet/Web 2.0.

The PDF of Polachi’s survey is available via pehub.

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