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MAVA VC survey: Q1 200725/07/2007. Source: The Mid-Atlantic Venture Association (MAVA).
 Mid-atlantic venture capitalists are reporting stability in term sheet competition and more realistic valuations, finds MAVA. Their forecast predicts a modest number of exits, but growth in new deals.
The Mid-Atlantic Venture Association (MAVA) has released its Q1 2007 MAVA VC survey results, indicating that deal activity was strong and stable this quarter with consistency seen in term sheet competition as valuations became more "on target". The forecast for exits within a firm's portfolio continues to be modest. With growth forecasted in deals to be closed in the coming quarter, VCs indicate a growing percentage of time dedicated to looking at new deals. Nearly a third of firms are fundraising in 2007 with the majority continuing to raise larger sized funds.
"Although term sheet competition is still healthy, valuations this quarter looks to be leveling off as investors increase the time they spend looking at new investment opportunities," said Julia Spicer, Executive Director of MAVA. "Venture investors continue to deploy capital in this region and beyond, while fundraising and looking for viable exit paths for their current investments."
The venture capital survey is part of MAVA's ongoing efforts to better assess the climate for private equity investing in the mid-Atlantic region. While the purpose of other private equity surveys is to track previous investment activity, the quarterly MAVA venture capital survey is intended to gauge investor attitudes, future activity and important investment trends. The Q1 2007 survey was conducted via email and distributed to member VCs using WebSurveyor, and received an 11% response rate.
Survey's Major Findings
Quarterly Deal Activity Strong, Similar Future Forecast
Survey respondents reported that deal activity in Q1 2007 continued to be strong, up slightly from the previous quarter with 77% of respondents closing at least 1 deal this quarter, as compared to 72% the previous quarter of Q4 2006. However, strong growth can be seen in the year-over-year figures with a 24% increase illustrated with 53% of venture capital respondents reporting closing at least one deal in Q1 2006. The outlook for investment activity in Q2 2007 calls for continued increase with 94% of investors predicting participation in at least one new deal.
Of those deals closed in Q1 2007, 62% of respondents indicated that 40- 100% of their deals were located in the mid-Atlantic region, a slight increase from the previous quarter's forecast of 58%. The percentage of regional deals is expected to be stable in Q2 2007 with 58% of VCs indicating that 40-100% of their deals will be located within region.
Term Sheet Competition Stable, Valuations Become More "On Target"
Term sheet competition showed stability this quarter with 26% saying competition was "routine" and 54% indicating that it was "occasional", up a few percentage points from the previous quarter's results of 25% saying term sheet competition was "routine" and 51% saying that it was "occasional". For the past year term sheet competition has been recorded at similar levels with 25% reporting "routine" competition and "54% reporting "occasional" competition one year ago in Q1 2006.
Survey respondents indicated that valuations showed a slight decrease this quarter with 47% characterizing them as "slightly-to-considerably overvalued", compared to 64% in the previous quarter of Q4 2006 and 61% a year ago in Q1 2006. VCs reported that valuations are more "on target" with 40% this quarter indicating that response as compared to 30% in Q4 2006 and 29% a year ago in Q1 2006.
VCs Spend More Time Looking at New Deals, Shift Timeframe to Close Deals
VCs indicated this quarter that they are increasing their time spent looking at new deals. While they are still not spending a majority of their time looking at new deals, VCs this quarter report that 61% are spending 40- 100% of their time dedicated to new deals, up from 50% the previous quarter (Q4 2006) but consistent with the time allocated a year ago, 63% in Q1 2006.
As VCs indicate an increased amount of time looking at new deals, the average timeframe for closing a new deal has shifted slightly with a 16% decrease in 4-6 months to close a deal falling to 51% this quarter from 67% two years ago in Q1 2005. VCs reported an uptick in both the shorter period of time (1-3 months) to close a deal and the longer period of time (7-9 months) to close with 38% reporting 1-3 months to close, up from 28% two years ago in Q1 2005 and 9% reporting 7-9 months to close a deal, up from 2% in Q1 2005.
Forecast for Exits Continues to be Modest
Forecasts for exit opportunities in fund portfolio companies was reported to be up slightly this quarter over last, although a modest percentage overall. Thirteen percent (13%) are forecasting that 40-100% of their fund will exit in the next twelve months, as compared to 6% in the previous quarter of Q4 2006, but more consistent with the prediction of 16% a year ago in Q1 2006.
VCs view the alternative exit strategy of a private equity purchase as a more viable opportunity this quarter as compared to the possibility of an overseas IPO. This quarter respondents still felt generally positive about the possibility of an exit via purchase by a private equity firm with 18% viewing the exit as "very likely" and 47% felt it was "somewhat likely". However, the alternative exit path of an overseas IPO saw a marked increase in the number of respondents that felt that exit was "not likely" with 62% this quarter as compared to 34% in Q4 2006.
VCs Raising Larger Sized Funds
With nearly a third of VC firms fundraising now (31%), a majority of respondents again this quarter indicated that they plan to raise a "larger sized fund" compared to the size of their last fund with 61% stating their intention to raise a larger sized fund. This figure is down slightly from 66% in Q4 2006 with the corresponding uptick recorded in those planning to raise the "same size fund" (15%) or not to fundraise (24%).
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. For more information, please visit http://www.mava.org/
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