Survey Says: Mid-Atlantic VCs Remain Active Investors, Receive More Business Plans, Raise Larger Funds

Forecast Calls for Increased Regional Investments as Valuations Creep Up MCLEAN, Va., July 31 /PRNewswire/ -- The Mid-Atlantic VentureAssociation (MAVA) today released its Q2 2007 MAVA Venture Capital (VC)survey results, indicating that deal activity continued to be strong duringthe second quarter with increases reported in: future regional deals; thenumber of deal proposals/business plans received by VC firms; and thepercentage of firms expected to raise larger sized funds. Surveyrespondents reported that valuations rose slightly this quarter but are notas high as a year ago. Merger and acquisitions continued to be seen as theprimary exit vehicle, although the number of forecasted exit opportunitiesvia this route dropped slightly. However, VCs felt generally positive aboutthe overall strength in the liquidity market. "Survey results this quarter illustrate stability in venture investingwith consistent findings in many market indicators such as deal flow,fundraising and liquidity events," said Julia Spicer, Executive Director ofMAVA. "With investors spending the majority of their time looking at newdeals and intending to raise larger sized funds, as the number of dealproposals received increases, the future investment forecast in themid-Atlantic region is very compelling." The venture capital survey is part of MAVA's ongoing efforts to betterassess the climate for private equity investing in the mid-Atlantic region.While the purpose of other investment surveys is to track previousinvestment activity, the quarterly MAVA venture capital survey is intendedto gauge investor attitudes, future activity, and important investmenttrends. The Q2 2007 survey was conducted via email and distributed to MAVAVC members using Vovici, and received a 10% response rate. Survey's Major Findings Deal Activity: Consistent Closes & Valuation Views Q2 Closed Deals Q2 2007 deal activity was strong and consistent with activity ofprevious quarters: -- 75% closed 1 or more deal, consistent with 76% in Q1 2007 and 74% a year ago in Q2 2006; -- 62% of respondents said 40-100% of their closed deals this quarter were in the mid-Atlantic region; the same percentage, 62% was recorded in Q1 and a year ago in Q2 2006. Q3 Forecasted Deals -- Survey respondents forecast next quarter's deals to be similar to previous quarters' estimates with 94% saying they will close 1+ deal in Q3 2007, consistent with the 94% forecast given for Q2 2007 deals. -- A slight increase was recorded this quarter in the forecast for regional deals (61% reported they anticipate 40-100% of their closed deals for Q3 2007 will be in region, up from 57% last quarter and 46% a year ago in Q2 2006). Valuations -- Perception of deals being "slightly-to-considerably overvalued" increased slightly to 50% in Q2 2007, up from 46% last quarter, but down from 66% a year ago in Q2 2007. -- A similar percentage (44%) of VCs this quarter felt that valuations were "on target," up slightly from 40% the previous quarter of Q1 2007. Deal Flow: Proposals Up, Buyout Interest Drops Deal Proposals An increase in the number of deal proposals received this quarter wasrecorded. -- 44% received 100+ per month, up from 30% last quarter and 29% a year ago in Q2 2006. -- 16% received 200+ per month, up from 4% last quarter and 7% a year ago in Q2 2006. Time Looking at New Deals VCs reported spending the same amount of time looking at new deals thisquarter as in previous quarter, 61% spending 40-100% of their timededicated to reviewing new investment opportunities. Desired Stages This quarter survey respondents indicated less interest in buyout andlater stage deals and the same interest in seed, early, and expansion stagedeals compared to a year ago. -- Buyout: 3% in Q2 2007 vs. 17% in Q2 2006. -- Late Stage: 16% in Q2 2007 vs. 24% in Q2 2006. -- Seed Stage: 16% in Q2 2007 vs. 19% in Q2 2006. -- Early Stage: 53% in Q2 2007 vs. 50% in Q2 2006. -- Expansion Stage: 47% in Q2 2007 vs. 50% in Q2 2006. Exits: A Buyer's Market Forecast -- Predictions of exit opportunities over the next 12 months within survey respondent's own portfolio shrinks slightly with 10% saying more than 40% of portfolio is prepared to exit, down from 13% last quarter. -- VCs reported consistent views on the overall liquidity market in terms of number of exits and their corresponding values as: -- 47% see "no change" (43% in Q1 2007); -- 44% see the market as "slightly strengthening" (41% in Q1 2007). Mergers & Acquisitions (M&A) -- Although the majority believe an M&A exit to be the most likely, M&A predictions are lower this quarter with 69% forecasting that 51-100% of their forecasted exits will be via an M&A transaction, down from 84% a year ago indicating that a corresponding uptick in either an alternative exit strategies or an initial public offering would be likely. -- More VCs felt that M&A activity within the region was decreasing but majority report no change: -- 13% say M&A activity is decreasing, up from 0% last quarter and a year ago; -- 41% say "no change" in M&A activity, down from 47% last quarter and 48% a year ago. Buyer's Market VCs believe that the buyer in an M&A transaction currently has theupper hand with 49% saying that it is a "buyer's market" and only 23%saying it is a "seller's market." Fundraising: Same Timing but Larger Funds Targeted Timeframe VCs reported sticking to the same timeframe for fundraising: -- 21% currently raising vs. 19% in Q1 2007; -- 14% raising later in 2007 vs. 12% in Q1 2007; and -- 28% raising in 2008 vs. 26% in Q1 2007. Size of Fund A slight jump in desire to raise a larger sized fund as compared tocurrent fund was recorded with 71% saying they'd raise larger fund vs. 61%indicating this in Q1 2007 and 63% a year ago in Q2 2006. Industry View: Threats and Diversity Greatest Threat VCs felt that the greatest threats to a private equity fund are: -- Lower returns (47%); -- Competition with other private equity funds (13%); -- Lack of exits (13%). Investment Diversity -- All respondents (100%) reported being venture equity investors, however they participate in other investment vehicles, such as: -- Debt - 13% -- Buyout - 3% -- Other Private Equity - 22% -- Seed Investing - 38% -- Nearly all (94%) of survey respondents indicate that the above investment diversity was part of their firm's original strategy. About MAVA MAVA represents private equity and venture capitalists with investmentinterests in the mid-Atlantic. Founded in 1986, MAVA provides a wide rangeof programs, information and forums designed to facilitate quality dealflow, encourage collaboration, and foster relationships with entrepreneursand investors in order to promote private equity investment. Membershipincludes more than 500 venture capital professionals representing nearly125 firms with collectively more than $90 billion in capital undermanagement. In addition, more than 250 key professional service providersfrom the legal, financial, executive search and consulting fields are alsoMAVA members. For more information, please visit http://www.mava.org