Venture Capitalists: U.S. Recession and Unstable Markets Will Slow Investing
and Fundraising Activities, M&As and IPOs, KPMG Study Finds
Despite muted investment activity, greentech, internet, biotech, China and
India remain hot options
NEW YORK, April 16 /PRNewswire/ -- Venture capitalists expect the U.S.
recession and unstable markets to slow investment and fundraising
opportunities, however China, India, greentech, internet services and biotech
will continue to gain momentum and investment in the coming year, according to
a recent survey by the U.S. audit, tax and advisory firm KPMG LLP.
In polling 201 venture capitalists, corporate buyers, and investment
bankers, KPMG found that 69 percent of respondents believe the U.S. is in a
recession - 47 percent indicated they believe it is a mild, short recession
while 12 percent expect the recession to be severe and extended. Seventy-four
percent believe the stock markets will stabilize within a year, but the
remaining 26 percent expect an extended unstable market environment. These
current economic conditions are expected to take their toll on venture capital
activity in the coming year.
Compared to the nearly $30 billion in U.S. venture investment in 2007,
some 49 percent of those surveyed said the current economic conditions will
lead to decreased investment activity in 2008, with 19 percent expecting a
reduction of more than 10 percent. Similarly, 49 percent said market and
economic instability will also lead to decreased fundraising opportunities for
the remainder of the year. KPMG conducted the survey in conjunction with
AlwaysOn, the venture capital new media organization.
"Given the state of the economy venture capitalists are signalling some
caution in terms of their investment approach," said Brian Hughes, KPMG
partner based in Philadelphia and co-leader of its venture capital practice.
"But they are indicating that though overall investment may decrease, there
will still be demand for investments in certain geographies and industry
sectors that project the most growth in the near future."
Investing & Fundraising
Despite the cautious view on overall venture capital investment activity,
KPMG found that greentech, internet services and biotech remain the focus of
the VC community and will continue to see increased investment.
In fact, when asked which sectors would see the largest percentage of
their available funds, 73 percent indicated technology and internet services,
11 percent said greentech, and seven percent said biotech. In addition, 69
percent said greentech investment will increase, 47 percent internet services
investment will increase, and 42 percent said biotech investment will go up.
However, 55 percent of respondents indicated that obtaining seed money would
be more challenging for entrepreneurs.
With regard to where the money will flow geographically outside the U.S.,
KPMG found that 69 percent say China will continue to see the lion share of
U.S. investment dollars followed by India (20 percent), Western Europe (7
percent) and Israel (3 percent).
"There is a clear indication that growth investors have become more
global, spreading their capital worldwide," said Packy Kelly, KPMG partner
based in Silicon Valley and co-leader of its venture capital practice. "Not
surprisingly, they continue to be bullish on emerging markets."
While venture capitalists will face a more challenging fund raising
climate, when asked where the most new fundraising opportunities would come
from 63 percent say the U.S. followed by China (22 percent), India (9
percent), Western Europe (6 percent) and Latin America (3 percent). When
asked who they were tapping for investment funds, pension funds (46 percent)
and endowments (21 percent) were the most common sources for funding.
IPO/M&A
When KPMG asked how the current economic and market instability would
impact IPO and M&A activity, 87 percent say they expect a decrease in IPOs
with 46 percent expecting lower valuations. Additionally, when asked what
percentage of their investments consider IPO as the likely exit, 76 percent
indicated less than 25 percent. Interestingly, when asked about Chinese and
Indian IPO activity compared to the past two years, 42 percent expect levels
to stay the same and 33 percent see an increase in IPO activity in those
regions. Fifty-four percent see M&A activity declining.
KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S.
member firm of KPMG International. KPMG International's member firms have
123,000 professionals, including more than 7,100 partners, in 145 countries.
Contact: Manuel Goncalves
KPMG LLP
Tel: (201) 307-7735
mdgoncalves@kpmg.com
SOURCE KPMG LLP
Manuel Goncalves, KPMG LLP, +1-201-307-7735, mdgoncalves@kpmg.com
