Rays of Hope Will Cut through the Clouds in 2013

Each January, I take to these pages to provide some insights and predictions for the coming year. Doing so not only sharpens the focus on NVCA’s priorities, but also enables me to revisit the prior year’s prognostications and see how we fared in terms of accuracy.

Turns out, we were particularly prescient in forecasting 2012. Last January’s piece predicted that exit markets would remain tight, fundraising would grow harder, VC dollars would migrate increasingly to technology, and little would get done in Washington, D.C., before the election. More or less, all came to pass.

Emboldened by this success, I offer these predictions for 2013:

Immigration reform for high tech workers will become law. President Obama has indicated to the tech community and other stakeholders that he is committed to getting this done, and the timing and dynamics seems ripe for that to happen. Moderate republicans in Congress have long supported measures like stapling green cards to the college diplomas of foreign students and other incentives like those contained in the StartUp Visa Act. Look for them to pair with like-minded democrats to pass legislation to help spur the economy and create more jobs.  Both sides are eager to show progress in this area—much like they were on the JOBS Act provisions, especially if budget talks break down and approval ratings fall further.

Fundraising will improve … for some. As the haze of uncertainty dissipates, more dollars will flow back to venture investing. However, those funds will be shared among fewer firms. Those who survive may consider cultivating a new class of LPs: high-net-worth individuals and family offices. Newly minted social media millionaires, for example, understand both venture investing and tax policy, and the latter doesn’t look good in the near term. Unlike pension funds and other traditional LPs, they can lock up their money for five, seven or 10 years because they don’t need it RIGHT NOW. VCs would do well to hone this pitch and nurture this segment in the coming years.

As the FDA process improves, life sciences firms will turn their attention to engaging CMS. This past year, Congress and the FDA made some encouraging moves toward greater transparency and predictability in its approval processes. FDA officials have worked conscientiously and forthrightly—under difficult circumstances—to address the concerns of all stakeholders. We expect that to continue during reform implementation.  Now, life sciences stakeholders want to see similar improvement from the Centers for Medicare and Medicaid Services (CMS) reimbursement process. CMS needs to provide more consistency to produce reimbursement prices commensurate with the extraordinary amounts of risk, time and money required to bring a new medical innovation to market today.

The exit markets will rebound in quantity and quality. For almost five years, uncertainty has kept many corporations and investors on the sidelines, but they can’t sit there forever. Corporations must buy smaller companies to remain competitive, and many VC-backed startups are now ripe for acquisition. The prospect of comprehensive tax reform will only enhance the matchmaking. We also expect the best IPO year since 2007. This past year featured many high-quality offerings, which will bring investors back into the market. Even if we go off cliff temporarily, the effects will shake out and investors will return quickly. Look for the pipeline created as a result of the JOBS Act to begin to flow in the second half of 2013.

Overall, these predictions provide a decidedly sunnier outlook than last year’s.

Granted, we must still navigate our way around the fiscal cliff and through the European economic crisis, leadership change in China, and the latest Middle East turmoil in early 2013. But I believe movement on most of these fronts will come sooner than later, paving the way for an active and encouraging close to 2013.

Mark Heesen is the president of NVCA and can be reached at mheesen@nvca.org.