VC Denial Giving Way To Acceptance

With the Dow in free fall, venture capitalists apparently are coming to grips with reality. Om Malik is reporting that Sequoia Capital this week brought in a bunch of its startups CEOs to let them know they need to batten down the hatches. It was only 2 1/2 weeks ago that VCJ did a survey of VCs and found that most of them didn’t expect any severe impact on their portfolio companies. Given the current crisis, it would seem that the respondents were being a little too optimistic when they took the survey. Some of the key responses from the 63 respondents (75% of whom identified themselves as VCs):

• More than 80% said the Wall Street crisis wouldn’t cause them to slow their current investment pace, with 65% saying they would continue at their current pace and 16% planning to actually accelerate their deal making.

• About 50% expected their portfolio companies to be hiring instead of laying off employees over the next 12 months.

• Almost 60% said the revenue of their portfolio companies had been unaffected by the credit crunch or that revenue would actually grow up to 10% this year despite the credit crunch.

• More than 75% expected late stage valuations to decline because of the turmoil on Wall Street, but 53% said the next round for their portfolio companies would see an increase in valuation, while just 24% expected to see a lower valuation for the next round for their particular companies.

• About 70% expected fund-raising to take longer because of the impact of the financial sector crisis on institutional limited partners. Still, 50% expected to hit their target and just 21% plan to lower their target.