72 percent of the respondents in Foley & Lardner’s fifth annual Emerging Companies Study said they expect emerging company valuations to grow over the next two years. That’s a record amount of optimism, and it contrasts sharply to the gloomy 38 percent who predicted growth in the 2008 survey.
More entrepreneurs are also thinking about exit strategies again – but only incrementally. 72 percent of the 230 emerging tech company executives, investors and advisers Foley & Lardner spoke with say they are at least three years from an exit, down from 81 percent in 2008.
Both numbers indicate an entrepreneurial attitude similar to that of 2006, when the economy was in overall good health.
Purse strings at VC firms may have been a bit looser than previously thought. The survey, which was conducted in September, found that companies who have sought and received capital over the past year were on the rise (climbing 9 percent). That money, however, was being used more for survival than for growth.
Among investors, half of those responding said they expect to raise a new fund within the next two years. That’s dramatically lower than when the survey started, though. In 2005, only 5 percent said they didn’t plan to raise a new fund. This year, that number jumped to 44 percent.
For the first time in five years, the number of people planning a merger or sale was on the rise, jumping to 61 percent, an 8 percent rise from the 2008 numbers.
“We attribute this data to a cash flow issue,” said Gabor Garai, chair of Foley’s Private Equity and Venture Capital Practice. “Companies in distressed situations are increasingly looking to the M&A market as a survival strategy as they lack the capital to stay afloat in the current economy.”
The IPO market remains fairly gloomy. Only 3 percent of those surveyed said they plan to test the stock market waters.
As a result, start-up executives are tailoring their company’s growth to fit the expectations of strategic buyers.
“With the majority of responding executives planning a strategic exit, the private equity and IPO markets, which have been driving exit strategies over the past few years, are likely to be less common,” said Susan E. Pravda, Chair of Foley’s Emerging Technologies Industry Team. “It will be interesting to see how the prevalence of strategic buyers shifts next year if the IPO market becomes more robust and liquidity expands.”
For more information on the survey results, you can read the full report here.
Photo by h.koppdelaney via Flickr