Confidence among Silicon Valley Venture Capitalists Q3 2017–Q4 2018: Trends, Insights, and Tells

Abstract

Our confidence in the future will help determine the future—for better or worse. VCs, financiers of innovation and new venture creation, have a longer-term time horizon than most other investment executives, so their confidence about the future will tend to have impacts on the economy that affect all of us.

Silicon Valley VCs, who are making investment decisions in the global heart of innovation in particular have been shown to exert a strong influence on the evolution of business, so their outlook may be a significant factor in determining the future. To develop a quantitative index and qualitative commentary of trends and insights, Silicon Valley Venture Capitalist Confidence Index™ Research Reports have tracked VC confidence about the future entrepreneurial environment among about 30 VCs since Q1 2004. This article reviews Silicon Valley VC confidence over the six quarters from Q3 2017 to Q4 2018 in the context of concurrent economic indicators and finds that increasing VC sentiment tends to be based on improvements in exit opportunities and new technology disruptions that create new markets, while decreasing VC sentiment is linked to high valuations, rising costs of business, rising competition for talent, and uncertainty in the macro environment. VC confidence also appears to correspond to CEO confidence, perhaps due to the operational focus of VCs. Because VC confidence in the future entrepreneurial environment tends to impact their business decisions today (e.g., investments in new ventures), tracking VC confidence and the factors that drive it may provide unique and valuable insights to private and public market participants.

TOPICS: Private equity, in portfolio management, portfolio construction