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BVCA Members Confidence and Attitudes Survey - December 200730/01/2008. Source: BVCA and YouGov.
 The private equity and venture capital industry is bracing itself for an economic slowdown, according to new research published by The British Private Equity and Venture Capital Association. The YouGov poll of BVCA members shows that 70 per cent of companies expect the UK’s economic environment to get worse in 2008.
This wave of research (Wave 17) was conducted with a non-random sample between the 12th to 18th December 2007, using a BVCA-branded online survey platform, and receiving 96 individual responses from 73 different member companies. This is the latest survey in this research series which is conducted quarterly amongst BVCA members who are professionals operating within the Private Equity and Venture Capital industry. The questionnaire asks this specialist audience to assess both the UK business and economic environments in general and more specifically, the conditions within their own industry. These questions are tracked to reveal how their evaluations change with time. A final set of questions focuses on some current topical issues.
UK Economy & Business
BVCA members were first asked to consider the UK economy overall, and it is indicated that they remain for the present optimistic, though curbed by some concerns for the future.
Respondents continue to rate the UK as an attractive place to do business, although there has been a notable decline in the number claiming the UK is an attractive place to do business- down from 93% in September to 70%. There has been a corresponding increase in the proportion viewing the UK as an unattractive place to do business- up from 7% in September to 29% in the latest survey. These are by far the most negative results reported on this measure.
Furthermore, thinking ahead over the next 12 months there is increasing pessimism about the overall attractiveness of the UK's economic environment. The majority (70%) are expecting a worsening of the UK's economic environment, an increase from the 48% reported in September.
BVCA members are expressing increasing concern regarding the overall burdens of regulation and taxation on business over the next 12 months. The December results show that 71% expect the regulation burden to increase (up from 57% in September), whilst 86% believe the taxation burden will increase (up from 69%).
On both measures these are the highest percentages expecting an increase in the burden since they were introduced to the survey in September 2006.
Conditions for the Private Equity and Venture Capital Industry
Despite the pessimism reported relating to the UK economy overall, there has been little difference in the past three months regarding members' own business and fundraising climate. The past two surveys have revealed favourability levels lower than at any time since 2003.
In line with the September results only 54% have indicated that the business climate for their company is favourable. There has been a slight increase in those stating that the climate is unfavourable- up from 16% to 19%.
In absolute terms, therefore, the climate remains more positive than negative.
Turning to the climate of fundraising there has also been little change reported in the last three months. The latest research shows that 42% of respondents believe the climate of fundraising is favourable (43% in September) whilst 28% have stated it as unfavourable (30%).
NB. It should be noted in assessing the business and fundraising climate, the timeframe for consideration has been shifted from past waves such that respondents were asked to base their ratings on the 'current' business climate, rather than that of the past three months. Comparisons with past data should therefore be viewed as indicative only.
Current Conditions
Figure 2 shows the weighted averages relating to the business climate and climate of fundraising for member companies (the weighted average is calculated by multiplying the weight [from +2 to -2] by the proportion giving that response).
The most positive assessment of the business climate since the tracker began in 2003 occurred for the quarter November 2006 to January 2007 (weighted average 0.89) and this weighted average has now fallen to a weighted average of 0.39. This is slightly down since September (0.44) and continues the return to the levels observed midpoint between July 2003 and January 2004.
Turning to the fundraising climate, a 'peak' occurred in Wave 15 (May 2007)- the highest weighted average score so far (0.91). This weighted average fell sharply in Wave 16 to 0.16, and has fallen again (albeit slightly) to 0.11.
Nevertheless it should be stated that overall BVCA members show more optimism than pessimism. This is also true regarding the health of members' portfolio companies, although there has been some decline reported this month.
- Just 5% of members currently view the health of their portfolio companies very favourably- down from 12% in September.
- 60% of members stated that the health of their portfolio companies is currently 'fairly favourable' (70% in September).
- There has been a slight increase in those saying the health of their portfolio companies is unfavourable, up from 2% to 7%, with more members stating that health is 'neither favourable nor unfavourable.'
Current BVCA member views on favourability for their investment activity saw little change this quarter, with a 1% decrease in those who consider it to be favourable (58% down to 57%).
Future Expectations
During 2007 there has been a universal and marked decline in the proportion of BVCA members expecting the four key measures described in the previous section to 'get better.' On all measures except members' investment activity the weighted average is now negative. The decreases in confidence were particularly marked up to September, although they have generally continued, particularly regarding 'health of portfolio companies.'
- 50% think the business climate will remain the same in the next quarter (previously 61%), and 36% think it will get worse (26%).
- The fundraising climate figures have hardly changed since September- 51% think it will remain the same in the next quarter (no change) and 39% think it will get worse (no change). However, there has been a decline, from 6% to 2%, in those thinking it will get better.
- 66% think the health of their portfolio companies will remain the same in the next quarter (previously 73%), and 30% think it will get worse (14%). There has also been a decline, from 10% to 3%, in those thinking it will get better.
- The investment activity figures have changed very little since September- 58% think it will remain the same in the next quarter (59% in September) and 18% think it will get worse (no change). On this measure the greatest proportion of members (23%, 22% in September) continue to say things will get better.
The increased concern in those predicting a decline in the previous two waves was not unfounded, and this is shown in the overall balance of expectation represented by the weighted average scores (Fig 3, below), with three figures being at their lowest since this tracking study began (the exception being 'your investment activity').
- Future business climate: weighted average score has fallen to -0.24, its lowest level since the survey was first conducted.
- Future climate for fundraising: In May 2007 this weighted average dropped to an all-time low of -0.11 (from +0.02 in February). This further fell to -0.34 in September and has again reached a new nadir: -0.40. This is the lowest ever weighted average across the four measures.
- Future health of their portfolios: This has been the weighted average that has declined by the greatest amount in the last three months, down from -0.04 to -0.27. It is therefore the measure on which there is the second greatest level of pessimism.
- Future expectations for investment activity: As mentioned, this is the only measure with a positive weighted average. It remains stubbornly above 0- 0.09 in May, 0.04 in September, 0.05 in December 2007.
External Influences on Business Opportunities
As Figure 4 shows Consumer confidence has sharply overtaken Interest rates as the perceived biggest external influence on business opportunities for member organisations (up from 66% to 81%). This 15% increase is nearly matched by a corresponding decrease in BVCA members mentioning the latter (down from 68% to 56%). These two influences remain the only ones mentioned by more than half of members.
Other influences, all mentioned by around one-in-five or one-in-six members, that are noteworthy are:-
- General level of business taxation 22%
- General level of share prices on the London Stock Exchange 21%
- Public sector spending 20%
- The sterling-dollar exchange rate 19%
- General level of share prices on international stock markets 17%
Topical Questions
Economic growth expectations
Members were asked to think ahead to 2008, and specifically by how much they thought the UK economy would grow. No one expected growth above 3.5%. The large majority (78%) expected growth between 1% and 2.5%as follows:-
- 1.01% to 1.5% 22%
- 1.51% to 2% 34%
- 2.01% to 2.5% 22%
(a further 10% were slightly more optimistic, expecting growth of between 2.51% to 3%).
So overall, most members expect growth to be lower than the predicted c.3% growth for 2007.
Bank of England base rate expectations
Members were also asked at what level they expected base rates to be in December 2008. The majority (58%) expected rates of between 4.51% to 5%, compared with the current 5.5%. A further 9% expected rates of between 4.01% to 4.5%. Additionally, 29% expect rates of between 5.01% to 6%.
The British Private Equity and Venture Capital Association is the industry body for the UK private equity and venture capital industry. Our membership of well over 400 members represents the overwhelming number of UK-based private equity and venture capital firms and their advisers. The BVCA has 25 years of experience representing the industry, which currently accounts for 57% of the whole of the European market, to government, the European Commission and Parliament, the media, regulatory and other statutory bodies at home, across Europe and around the world. We promote the industry to entrepreneurs and investors, as well as provide services and best practice standards to our members.For more details, visit them at www.bvca.co.uk
YouGov plc is a professional research and consulting organisation, pioneering the use of the Internet and information technology to collect high quality, in-depth data for market research, organisational research and stakeholder consultation; providing companies with a rounded view of their staff, customers, brands and investors as well as assessing opinion amongst the general public and the media. For more information visit www.yougov.com.
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