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The latest Silicon Valley Venture Capital Confidence Index, released today, shows confidence levels have returned to pre-recession levels among investors in the San Francisco community. The index, based on a survey of 36 venture capitalists, rose in the third quarter, marking its fifth straight quarterly increase.
The last time VC confidence was at this level was the third quarter of 2007, just prior to the financial meltdown. While a significant improvement from the lows of late 2008 and early 2009, sentiment is still not as strong as it was in 2004, 2005 and 2006.
The return of confidence is a combination of both an increasingly hungry market for initial public offerings and a healthy pipeline of innovation, according to Mark Cannice, author of the report and professor with the University of San Francisco School of Management.
Tim Draper, founder of VC firm Draper Fisher Jurvetson, says he is looking forward to “high confidence of a couple big years ahead,” according to Cannice's report. Meanwhile, Bill Reichert of Garage Technology Ventures says that he has seen a new equilibrium settling into the venture capital markets. “The venture ecosystem is rebalancing. The Web 2.0 bubble has largely passed, and innovation is spreading across multiple sectors,” Reichert says, according to the report.
The strengthening of the venture capital markets is still subject to the political uncertainty in Washington and continued economic concerns in Europe. “The financial fuel is flowing again, thanks to a healthier market and macroeconomic environment. We'll see if Washington or Europe manages to kill the buzz before we've had a chance to stretch out the run,” says Reichert.
In this tentative recovery of the markets, Silicon Valley VCs will watch the impending Twitter IPO carefully, says Igor Sill of Geneva Venture Management, in the report. Other technology companies that may go through high-profile IPOs in the near future include online storage company DropBox, mobile payment processor Square, brand advertising company GlamMedia, daily deal site LivingSocial, digital music service Spotify and accommodation rental company AirBnB, says Sill.