MAVA Members See Opportunities And Challenges In Current Market
MAVA Invited to Ring The Opening Bell SM at the New York Stock Exchange
McLean, VA – October 29 2008 – In the face of the most challenging market in recent history, the Mid-Atlantic Venture Association’s special survey of member funds says current market conditions require changes in fund strategies, hard decisions for company management and nimble responses to changing conditions.
Respondents noted that transaction activity in the third quarter of 2008 was steady, but less than forecast. Even with current conditions, more than 80 percent of MAVA funds responding to the quarterly survey of the region’s capital firms said they are on track to make one or more investments by year-end. So while they are continuing to invest, funds also anticipate that the time between investment and the exit of portfolio companies will be longer, and those later exits are prompting different funding strategies.
More than half of MAVA respondents anticipate the current market conditions – with very tight-to-frozen credit -- to continue to the fourth quarter of 2009. About a fifth expect the market to thaw by the second quarter of 2009, while more than a quarter of respondents foresee current challenging conditions continuing to 2010 and beyond.
The just-completed survey, The State of the Market is a special initiative that replaces MAVA’s regular poll of MAVA core membership after the conclusion of each quarter. In recognition of MAVA’s continuing industry leadership, NYSE Euronext has invited MAVA representatives to ring the bell opening the market October 30, 2008.
“Our members say the current environment, while quite challenging, actually can present an opportunity for companies in their portfolios to focus on profitability, to take market share away from weaker competitors and to provide value propositions to their customers. This climate puts a premium on organic growth and efficiency,” said Julia Spicer, executive director of the Mid-Atlantic Venture Association. “Our funds report providing more hands-on oversight and budget planning guidance to help their portfolio companies conserve cash. Our member funds see this as an excellent time to invest – particularly with the entrepreneurs who are resourceful enough to stick with it despite the fear in the markets today.”
In addition to offering a retrospective of local venture capital industry activity, the survey asks participants to look ahead. MAVA has shared the survey results with members earlier today and is offering the following highlights to the public.
The Q3 2008 survey was conducted via email and distributed to MAVA VC members using Vovici. It received a 14 percent response rate.
• Q3 2008 deal momentum kept steady pace – but slower than forecast
More than 70 percent of respondents (71 percent) closed one or more deals in the third quarter of 2008, increasing the pace from the previous quarter when 65 percent completed transactions. Those closing more than two transactions in the third quarter of 2008, 11 percent, declined slightly from second quarter 2008 when 14 percent reported closing more than two deals. Deal closings were off slightly from the forecast pace: at the end of the second quarter more than three quarters of respondents (77 percent) said they expected to close one or two deals in the third quarter 2008, and 14 percent forecast closing three or more deals in the third quarter.
• Externals dictate slower pace
Approximately a third of respondents (31 percent) said that viability of investments shifted; and over a quarter (27 percent) reported they did not close as many deals as anticipated because of the new need to conserve cash and reserve additional follow-on capital. MAVA members had a steady volume of deals to review; 40 percent reported having 50-99 deal proposals per month during the quarter and 37 percent reported reviewing 100 to 200 or more.
• Pipeline flow continues – 82 percent expect to close deals in Q3 2008
Almost three quarters of respondents (73 percent) expect to close one or two deals in the third quarter of 2008, and 9 percent forecast closing three or more deals in the fourth quarter.
• Opportunities continue, though forecast is mixed
More than 40 percent of respondents (42 percent) reported no visible change in the pace of investment opportunity in the region and beyond; a third (33 percent) said investment opportunities are declining; and 22 percent said opportunities are increasing.
• Funds reserving more cash
More than half (59 percent) of respondents said that in response to the current market conditions, they are reserving more follow-on cash. Other strategies being deployed to counter the market’s current forces include extending fundraising timeline (14 percent); changing the fundraising strategy/policies (15 percent) and reconsidering a fundraising launch (6 percent).
• Funds foresee extended time horizon for exits
Over a third (34 percent) anticipate an average timeline of three to four years; 37 percent anticipate five to six years; and 29 percent anticipate longer than six years will be required before liquidity events.
• Later exits prompt different funding strategies
Approximately a third (30 percent) of survey respondents are looking at more deals in the B and C rounds; another third (33 percent) are expanding the number of syndicate partners involved.
About MAVA
The Mid-Atlantic Venture Association (MAVA) represents private equity and venture capitalists with investment interests in the mid-Atlantic. Founded in 1986, MAVA provides a wide range of programs, information and forums designed to facilitate quality deal flow, encourage collaboration, and foster relationships with entrepreneurs and investors in order to promote private equity investment. Membership includes more than 500 venture capital professionals representing nearly 125 firms with collectively more than $100 billion in capital under management. In addition, more than 250 key professional services firms from the legal, financial, executive search and consulting fields are also MAVA members. For more information, please visit www.mava.org.
