Spectacular M&As, Healthier IPOs, Happier LPs: VCs Upbeat About 2011

Venture capitalists are generally an optimistic bunch, so it’s no surprise that for 2011 they foresee a better IPO landscape and lucrative acquisition deals.

But what I found interesting in a handful of forecasts submitted by GPs was this: They see excited LPs willing to invest more aggressively in venture funds. What a turnabout that would be.

With the year rapidly drawing to a close, we at peHub decided it was time to begin looking toward 2011. After all, the new year isn’t suppose to arrive until we have something to compare it to.

This week and perhaps next (based on how many predictions we receive) we will publish a series of posts on this blog with your outlooks – good and bad.

So far, most of what we received by e-mail is pretty upbeat, with expectations for a better M&A landscape and attractive opportunities for information technology investing. Health care investors are more circumspect.

Today we start off with the big picture: the exit climate. Here is a forecast from Bob Pavey, a partner (pictured) at IT and life sciences investor Morgenthaler:

“2011 will be a surprisingly good year.  The recent tax ‘compromise’ and the excellent performance of IPOs in 2010 (particularly IPOs of foreign technology companies) means that we will have a much better IPO climate in 2011.  And this means that limited partners will be happier and will start investing in venture capital more aggressively again – particularly in international firms.”

If the last part about LPs comes true, 2011 could be a true departure from 2010. Pavey is not the only one expecting a more upbeat environment for exits. Just listen to Mark Brooks, a managing director at mid to late stage investor Scale Venture Partners:

“Soon the big incumbents with many billions of dollars on their balance sheets will need to put it to use. They’ll do some spectacular M&A deals in 2011 rather than declare themselves mature, low growth companies and do share buybacks with the cash.”

Right on. Big money always burns a big hole in a big pocket. Already we have seen technology giants wade into the M&A waters and there is little reason to doubt they will continue going deeper. Here is more confirmation of the trend from Robert Ackerman, managing director of Allegis Capital, a seed and early stage investor:

“Strategic M&A will continue to rebound as corporations regain confidence regarding the global economy and look for growth.  Driven by the increase in M&A activity as well as a stronger IPO pipeline, exit valuations will continue a slow steady rise.”

The corollary to this is that, along with buying, strategics will begin to more actively invest. It is a likely outcome, especially in cleantech, and also may shape the year.

You are welcome to add your predictions in the comments section below, or send them to mark.boslet@thomsonreuters.com. We look forward to publishing them.