from the February 2009 issue

VC survey indicates widespread pessimism for 2009

Three out of four VC Indicator respondents expected at least 10% of venture capital-backed companies to close in 2009.

The fourth quarter VC Indicator survey of venture capitalists by Deloitte Brightman Almagor Zohar shows widespread pessimism as 2009 approaches. 74% of respondents expect at least 10% of venture capital-backed companies to be shutdown in 2009.

Not a single respondent believed that start-ups will post an increase in revenue. 44% believe we will see a major decrease in the revenue, and 46% believe we will see a slight decrease.

Deloitte Israel High Tech Leader Asher Mechlovich said that the difficult year ahead will essentially leave mostly strong companies. "Tech companies are headed for rough times. The revenues forecasts for the next year are all for decrease, albeit at varying levels, with no increases in the foreseeable future. Shareholders are going to keep 'hands on' intervention with regards to reducing salaries, cutting expenses and layoffs. Credit lines and equity funding opportunities are becoming very limited. All of the above will make the survivors of the year 2009 an excellent investment opportunity, as long as you know who is going to make it to 2010."

Employment expectations were also gloomy. 21% of the respondents believe there will be more than 5,000 layoffs, 46% believe there will be between 3,000 and 5,000 layoffs, 26% see between 1,000 and 3,000 layoffs, 3% see less than 1,000 layoffs, and only 5% believe there won't be major layoffs. The vast majority of respondents -92% - believe that high tech companies that do not fire employees are likely to slash salaries, compared with 70% in the third quarter survey. 87% of the venture capitalists surveyed claimed the government should support the high tech industry. 72% of venture capitalists surveyed believe that the government should provide a wide range of R&D grants, though only a third felt the government should extend direct support to technology companies facing difficulties Mechlovich said, "The decision whether or not to support the industry will be influenced by the upcoming general election."

Though most respondents did not expect IPO opportunities on Nasdaq, 41% did think that mergers and acquisitions will increase during 2009, and 36% felt it will ramp up in early 2010. 79% of respondents expect exit valuations to decrease, compared with 17% in the fourth quarter of 2007.

Reprinted from the Israel High-Tech & Investment Report February 2009

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