By Deloitte, Special for USDR
United States-based investors are expressing doubt in the government’s ability to enact policies that support domestic venture capital and private equity investment over the next 12 months, according to the “2015 Global Venture Capital Confidence Survey” from Deloitte and the National Venture Capital Association (NVCA). This year’s survey ranked the U.S. among the lowest in investor confidence, with a rating just above those of Sweden and Brazil.
The survey revealed that of the priority policy areas cited, nearly two-thirds of U.S. investors called for government leaders to address legal immigration reform. The survey also highlighted positive investor sentiment in emerging technologies such as cloud computing, mobile technology, and the Internet of Things over the course of the next year. Additionally, the global IPO market rose for the fourth year in a row in terms of positive investor outlook.
“Despite a hot IPO market and the proliferation of appealing investment opportunities across industries, this data shows that investors believe that the government needs to do more to ensure they can fully capitalize on the prospects ahead,” said Jim Atwell, national managing partner of the Emerging Growth Company practice, Deloitte & Touche LLP. “Technology continues to generate a great deal of excitement on a global level, especially with today’s optimal market conditions and despite the widening gap in governmental support.”
The survey, conducted in May and June of 2015, included opinions of more than 200 venture capital, private equity and growth equity investors in the Americas, Europe, Asia and Africa. It assessed investor confidence in the global venture capital environment, market factors shaping industries, and investments in specific geographies and industry sectors. Opinions were measured on a scale of 1 to 5, with a score of 5 representing the most positive indicator.
Bullish investor outlook for IPO market, and public policy interests emerge
This year’s survey captured opinions on the IPO market, both domestic and global, with both showing continuous year-over-year growth since 2012. Overall the global IPO market ticked up to an average of 3.24, while opinions of investors’ home country IPO markets rose to an average of 3.29. The survey also revealed varying sentiments around the globe about governance and the enactment of policies to fuel both private equity and venture capital investing, with the global outlook on average ticking up slightly over last year at 2.78.
While immigration reform led among over 60 percent of U.S. investors as a policy issue of focus, only 23 percent of non-U.S. investors expressed the same level of interest. From a global perspective, exactly 50 percent of investors outside the U.S. expressed that they would like to see public policy leaders take on tax incentives and tax credits for venture capital investment, versus 21 percent of investors in the U.S. The survey also yielded varying views abroad for initiatives around infrastructure and job creation, with 41 percent of investors outside the U.S. calling for public leadership to take both those initiatives on in their respective countries. Just 32 percent of U.S. investors called for infrastructure, while 25 percent called for job creation.
Venture capital fundraising gains momentum
U.S. venture capital fundraising continues to gain momentum with U.S. venture capital firms raising $10 billion in new commitments for 74 funds during the second quarter of 2015, according to Thomson Reuters and NVCA. With a 10 percent increase by number of funds raised compared to the first quarter of 2015, and a 39 percent increase by dollar commitments, the second quarter was the strongest three-month period for venture capital fundraising since the fourth quarter of 2007.
“As the global hub of innovation, there is much for U.S. venture investors to feel excited about. The fundraising environment continues to improve, the IPO market is gaining strength and there is no shortage of innovative, game-changing startup companies to take to the next level,” said Bobby Franklin, president and CEO of NVCA. “Yet in spite of all there is to be confident about, U.S. venture investors continue to believe U.S. policymakers aren’t doing enough to enact policies that help strengthen the innovation ecosystem. If policymakers were to proceed with some of the most challenging issues of our time, there’s no telling what we could achieve.”
Despite a moderate first quarter, venture-backed initial public offerings (IPOs) in the second quarter included 27 listings that raised$3.4 billion, according to Thomson Reuters and NVCA. Led by the biotechnology sectors, 19 of the 27 offerings during the quarter were life sciences IPOs, representing 70 percent of total listings in the quarter.
Confidence strong across U.S. technology hubs, Israel and Canada, but declines in Brazil and other emerging markets
Global investor outlooks for U.S. opportunities again increased in 2015, scoring an average of 4.17 (up 14 basis points from 2014), according to the survey. Furthermore, the survey revealed that investors registered the highest confidence for their home country’s economy in any year since this question was first posed by our survey in 2012, logging an average rating of 3.46.
Investors were upbeat when asked about investing in the largest U.S. metropolitan cities and emerging technology hubs. Silicon Valley remained highest at 4.28, followed by New York City at 3.86 and Boston at 3.77. Los Angeles and Chicago ranked fourth and fifth at 3.43 and 3.22, respectively.
On a global level, interest in investing in Israel (3.90) and Canada (3.60) continued to rise from previous years’ survey results. Meanwhile, emerging markets declined again this year among global investors, rating Brazil at 2.70, down 43 basis points from 2014. For the first time ever, respondents were also asked to rank the confidence levels in investing in Mexico and Russia, neither of which drew notable results, averaging 2.43, and 1.82, respectively. Overall, U.S. venture capital investors feel confident in domestic investments (3.79), but are less so in investing outside the U.S. (2.86).
Investors rally around cloud, mobile and the Internet of Things
U.S. venture capitalists named cloud computing the strongest technology investment sector at 4.13, marking its third year as most valuable segment. The survey revealed for the first time that investors within the U.S. expressed virtually the same interest towards investing in mobile technology (4.12). In a sign of improvement for life sciences investing, venture capitalists gave the biopharmaceuticals sector an average ranking of 3.59 and medical devices and equipment an average ranking of 3.01. Finally, the survey yielded U.S. investors exhibiting the least interest in energy/clean technologies (2.69) and hardware/semiconductors (2.71).
Globally, venture capital investors showed the greatest interest in cloud computing (4.18), followed by mobile (4.05), and the Internet of Things (3.95). Similar to the sentiments expressed by U.S.-based investors, those investors outside the U.S. showed the least interest in hardware/semiconductors (2.89).
For more information and the full 2015 Global Venture Capital Confidence Survey please visit:
www.deloitte.com/us/2015vcsurvey. Connect with us on Twitter: @DeloitteTMT and @nvca.
About Deloitte’s Emerging Growth Company (EGC) Practice
Deloitte’s emerging growth company practice works with innovative high-growth companies on their way to becoming the next generation of market leaders. Through our multidisciplinary approach focused on quality, our team of dedicated professionals understands the challenges that venture capital-backed companies face and offers a broad perspective on emerging issues, leading practices and industry trends. Our extensive IPO experience, across all industries, along with our experienced professionals, enables us to deliver insights that others may have missed. The practice is also home to Tech Venture Centers (TVC) in Waltham, Massachusetts and McLean, Virginia. The Centers are designed to create communities of leading service providers, addressing the needs of emerging, high-growth IPO bound companies and the venture capital community. For more information, please contactEGC@deloitte.com or visit www.deloitte.com/us/egc.
Venture capitalists are committed to funding America’s most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth. As the voice of the U.S. venture capital community, the National Venture Capital Association empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community’s preeminent trade association, NVCA serves as the definitive resource for venture capital data and unites its 400 plus members through a full range of professional services. For more information about the NVCA, please visit www.nvca.org.
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