VCs More Upbeat About Investing, Returns Survey Shows

Venture capitalists are surprisingly upbeat about next year’s fund returns.

This is the case despite the prolonged downturn, relatively lukewarm exit markets and a restless base of limited partners.

The optimism was a key finding of a Pepperdine University Private Capital Markets study released on Tuesday. The study found that VCs expect to offer LPs a median gross return of 15% over the next 12 months, compared with 5% for the past 12 months. The median net return is expected to be 11.5 percent.

Fueling the returns are steady gains from mergers and acquisitions. Two-thirds say they expect to sell a portfolio company to a public or private acquirer. Only 14% expect an IPO.

Other findings of the survey of 213 venture capitalists are:

*Twenty-two percent of VCs say they are presently raising a fund and 20% more expect to raise a fund in the next one to two years;

*One third say they anticipate making two or three investments over the next 12 months, with 22% planning to invest in Silicon Valley, the largest geography singled out. The second largest geographical concentration was overseas investments. And 10% expect to make investments abroad.

*A total of 18% say they expect to invest in a software company over the next year, the largest category of interest. Biotech was next at 9.7 percent.

*In addition, 43% expect general business confidence to improve in the next 12 months and the nation’s gross domestic product to grow 1.4 %, compared with the expectation of 0.5% growth by the overall private market community of bankers, LPs and brokers.

*In terms of portfolio company impediments, government regulations were at the top of the list. Next in line was limited access to capital (46% of VCs thought so).