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VC Survey: Investment Down, Obama Up in 2012

Seema Mody, CNBC Reporter
Thursday, 15 Dec 2011 | 3:53 PM ET
Barack Obama
CNBC
Barack Obama

It could be an uneasy start to the new year in the venture capital world. But for President Obama, life could be good.

A survey conducted by the National Venture Capital Association and Dow Jones VentureSource reveals that venture capitalists and CEOs, while still somewhat optimistic about the U.S. economy, are less certain about how much it will improve in the coming year.

But Obama doesn’t suffer from their cautious outlook. According to the sixth annual survey, which polled more than 500 VC professionals and CEOs of venture-backed U.S. companies, VCs and CEOs predict that it will be Mitt Romney vs. Obama come fall, with Obama the eventual winner by a nose.

Mark Heesen, the president of NVCA, said the uncertainty in the markets makes it tough to assess what the venture capital landscape will be like in the year ahead.

“The venture industry is not an island unto itself and economic instability here and abroad, coupled with a number of public policy issues poised to impact the start-up community,” he said in a statement.

Weakness in the U.S economy as well as ongoing concern about the European debt crisis is keeping investors cash-strapped. The sixth annual survey, which polled more than 500 VC professionals and CEOs of venture-backed U.S. companies, did find some bright spots in the investor community, however, including information technology and healthcare.

This lukewarm outlook on investor activity for 2012 doesn’t appear to be deterring some startups.

Jeff Clavier, managing director of SoftTech VC in Palo Alto, Calif., says, that while his company has been investing in about 20 startups per year for the past few years, "We are now buying five to 10 percent of the companies we invest in, and we put more dollars [an average of $400,000 toward each] deal."

And while he is still seeing the "usual mix of angels, micro-vcs and traditional firms" investing at the seed stage, the big question will be what happens at the Series A stage. "While it is true that some companies will be able to grow profitably with just a seed round, the vast majority of startups will require a Series A — and only the best will be able to do so easily. Figuring out early how to get our companies on track with regards to Series A milestones is an essential part of the work we do during the first 12 to 18 months of our investment."

For entrepreneurs based on the East coast, and particularly in New York City, 2012 might be their year, notes the report. “Regionally, 46 percent of VCs and 41 percent of CEOs expect the New York start-up ecosystem to improve further in 2012.”

While 50 percent of VCs responded that they will look outside the U.S. next year, there was no one clear hot spot. China and Western Europe were most frequently cited as possible places to invest: 19 percent of VCs said they’d be funding projects in those areas, followed by Canada (14 percent), India (12 percent), and Latin America (10 percent).

Survey respondents also weighed in on one of the most important issues of 2012: the U.S. presidential election. Mitt Romney will be the 2012 Republican presidential nominee, according to 79 percent of VCs and 67 percent of CEOs. And, while the founder of investment firm Bain Capital might be one of them, this group of investors — 64 percent of CEOs and 56 percent of VCs — say they believe Obama will ultimately win a second term as president in 2012.


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