VC Predictions from the NVCA

A survey of what VCs expect next year confirms the obvious, with one curious twist.

The results of the National Venture Capital Association’s annual survey of what VCs expect to happen in 2010 confirms many things we already know: the industry is shrinking, the exit window will open, cleantech is the biggest growth sector…

But one slide caught my attention: 87% of the 325 respondents said that in 2010 venture funds raised will, on average, be smaller. Last week, three VCs speaking on a panel in Mountain View (Richard Yen, Andrew Braccia and Tim Chang) said we’ll see a shift toward fewer, bigger megafunds. The panel and the survey don’t seem to square.

The average fund size, according to Richard Yen, has a lot to do with LP bureaucracy. He told me the shift toward megafunds was both due to a need for a global footprint and because it’s simply easier for LPs to write fewer checks. As money allocated for VC decreases, it won’t mean smaller checks to as many firms—it’ll simply mean fewer checks.

That sounds like a pretty inefficient way of doing things, but somehow believable. I doubt the person at CalPERS who picks the VC fund winners will get a bonus 10 or 15 years from now when those investments pay off. I have a call pending with the NVCA to get more info on the factors affecting fund size.

Other take-aways from the survey:

A plurality think venture capital investment will increase slightly ($21-25 billion)

Only 18% said they would invest in fewer companies. 49% expect to invest in more companies (of course, VCs always say that).

Seventy-two percent said the percentage of deals outside their current geographical footprint would remain the same. That’s interesting because of the globalization trend. Maybe respondents already consider themselves as having a global footprint.

Cleantech and Internet are expected see the most growth. 64% said investment in semiconductors will decrease—the VC shift from computers to energy is pretty definitive.

The later the stage, the bigger the expected increase in investment.

A plurality, 43.3%, think there will be 20-23 venture-backed IPOs. That’s a little less than the more bullish 50% that Woody Benson, David Cowan and Todd Chaffee were talking about last week at the AlwaysOn Venture Summit.

Only 1% thought the number of venture-backed acquisitions would decrease. I’d like to know who those 3 people were.

Sixty-four percent think the value of acquisitions will increase. Corporate buyers who missed the firesale will be sad.

Ninety percent said the number of firms in the industry will shrink. A majority said it would shrink by 16-30%, a little less than the rough estimate of ½ we’ve been hearing from VCs.

Venture View 2010 Charts

image credit: scrapetv.com