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Venture Capitalists are increasingly optimistic about the immediate future of investing in Silicon Valley. Their confidence registered 3.75 on a 5 point scale, with 5 indicating high confidence and 1 indicating low confidence, according to the quarterly Silicon Valley Venture Capitalist Confidence Index released today.

The index polled 35 San Francisco Bay Area venture capitalists in December 2010 about how they viewed the high-growth venture entrepreneurial environment in the San Francisco Bay Area over the next 6-18 months.

It found that confidence had ticked up slightly to 3.75 from 3.70 a quarter earlier, as VCs continue to see promise in an improving exit environment and steadily rising public capital markets.

The survey respondents all agreed that the strength in confidence is clearly related to increasing exit opportunities through both acquisition and the long awaited return of the IPO market.

It also found that the increase in acquisitions provides a context of competitive bidders to drive demand for IPO exits. And new technology developments and social trends are creating fresh market opportunities for entrepreneurs and their venture backers.

Additionally, the report found that the strength in M&A exits is being driven by growing corporate cash balances that have decided it is now worth it to chase venture-backed innovation.

Such growing corporate curiosity is a good sign for a community that has long questioned whether a possible tech bubble has been scaring away VCs spooked by still-shaky markets.

This fourth quarter reading confirms an upward trend in confidence that is now at its highest point in two years.

Still, some VCs polled recommended caution until valuations have been clearly sorted out — a trend that could be helped by the types of high-profile IPOs like LinkedIn’s public debut yesterday and Nielsen’s $1.6 billion emergence Tuesday — and investors understand the space more clearly.

“Venture capital backed start-ups and financings are seeing a new renaissance and the reason is ‘Clomosol,’” said Venky Ganesan of Globespan Capital Partners. “No, it’s not a new drug but rather my coined term for the four major trends powering technology: Cloud, Mobile, Social, and Local. The wealth creation driven by Clomosol will dramatically impact both the local Bay Area economy as well as the overall technology sector.”

“However, Clomosol is not for everybody and side effects might include increased traffic, a shortage of engineers, and high valuations,” warned Ganesan. “Please talk to an experienced VC before embarking on this trend.”

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