Mid-Atlantic Venture Association (MAVA) Sees More Deals Being Made In Second Quarter 2009 While Investors Continue To Focus On Current Portfolio Companies
McLean, VA - April 23, 2009 - More than three-quarters of investors anticipate closing one or two new deals in the second quarter of 2009, forecasting an increase from the number of deals closed in the first quarter. Funds continue to commit more capital and more time to working with their current portfolio companies, according to results from the Mid-Atlantic Venture Association (MAVA) quarterly survey of investor firms.
Deal flow slowed in first quarter of 2009 with 46 percent of survey respondents reporting closing no deals, an increase of 17 percent from first quarter 2008. However, the time frame to close a deal has shortened to one to three months from four to six months for 42 percent of the investors.
MAVA released results today from its survey of investor member firms conducted each quarter on the state of the venture industry, venture fund investments and portfolio companies. This survey covered first quarter 2009 activities and a forecast about the remainder of 2009. Issued via e-mail and distributed using Vovici, it received a 25 percent response rate.
Liquidity timeline now five or more years
Uncertainty of the market economy, the viability of the potential investment changing during the due diligence process and the need to reserve follow-on cash elsewhere were the primary reasons noted for a downturn in deal activity. The average liquidity timeline for investments is now estimated by 88 percent of the respondents to be five or more years. As a result of extended exit timelines, most funds are setting aside more follow-on capital for their existing investments.
Investors see opportunities
Investors do see opportunities in the marketplace, according to Julia Spicer, MAVA's executive director. "They are looking for highly capital-efficient businesses with low valuations and companies that offer highly differentiated products and services with a quick return on investment. Strong companies today have a tremendous opportunity to capture market share and investor interest. Micro- and small cap-companies with low valuations are also seen as attractive deals."
There is also investor interest due to federal stimulus initiatives primarily in the alternative energy, clean tech, and health care information technology sectors, but the high capital requirements of energy technologies make them less appealing.
Lack of exits and liquidity are challenges
There are numerous challenges ahead for the venture industry, stated survey respondents. Lack of exits and liquidity were frequently cited as well as the challenge of finding sufficient capital to keep promising portfolio companies alive. Investors, however, are encouraging limited partners to remain active in order to take advantage of attractive investment opportunities created by dropping valuations. "Strong companies attract investor interest," stated Spicer. "Well-positioned deals still get funded but there is lower risk tolerance."
Portfolio companies face challenges with liquidity and slower revenue growth due to their customers feeling the same need to cut expenses and conserve cash. On the positive side, portfolio companies have less competition and easier access to talented employees. With the actions taken by Obama administration, the industry is anticipating opportunities with federal stimulus programs for their portfolio companies but there is also concern about the impact of new federal policies and regulations.
Capital Connection '09
MAVA's flagship event, Capital ConnectionTM '09, is scheduled for May 26-27 at the Mandarin Oriental Hotel, Washington, D.C. Leaders from technology enterprises, investment, and government will be on the program along with more than 50 technology companies at all growth stages that will be showcasing their capabilities to a nationwide audience of investors, advisors, partners, and entrepreneurs. For registration information, go to www.capitalconnection.org.
About MAVA
The Mid-Atlantic Venture Association represents private equity and venture capital firms with investment interests in the mid-Atlantic and beyond, entrepreneurs, and their strategic partners. MAVA provides a wide range of programs, information and forums designed to stimulate revenue and company growth, facilitate quality deal flow, encourage collaboration, and foster relationships among entrepreneurs, investors, strategic partners and customers. Membership includes more than 500 venture capital professionals representing nearly 125 firms with collectively more than $100 billion in capital under management. For more information, please visit www.mava.org
Contact:
Mary Ellen Knuti
703-506-9300
Agnes Stevens
919-417-0858
