Eric Wesoff 11 06 09, 11:47 AM

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Optimism in Venture Capital and IPO Outlook

Always On previewed its December Venture Summit with a breakfast at the offices of Wilson Sonsini Goodrich & Rosati (WSGR) this morning where it examined trends in finance and the VC outlook for 2010.

Tony Perkins runs Always On, christened Silicon Valley the "Athens of the Information Age." He asked the panel "if the economic recovery is real?"

Doug Merritt of SAP is in charge of sales to SAP's largest clients  (SAP will have revenues of $14 billion this year) and gave a 30,000-foot view.  "People were so panicked at the end of 2008, they didn't even know how to act," he said. But now "the largest organizations I deal with are actively investing." On the Greentech front, he detailed how Cisco's travel budget has dropped from $750 million to about $250 million, not because the company has reduced travel so much but because it has massivly increased meetings via telepresence.

Mark Reinstra of WSGR spoke of the IPO climate: "There have been ten VC-backed IPOs in 2009, but from an informal survey within the firm, we've seen many more companies preparing for IPOs just within WSGR."  The litmus test remains that a company needs $30M to $60M annual revenues to IPO." 

Ted Smith of Union Square Advisors said: "There's a lot of stuff coming in the top of the funnel but as far as actual M&A exits – it's a very high bar."

Jim Anderson of Silicon Valley Bank (SVB) works in the analytics group, and specailizes in valuations. "There is no question that valuations have dropped precipitously," he said, adding that there is a disconnect between the state of the economy and the multiples and valuations in the stock market.  He likened the state of the economy to a near-comatose patient on pain killers.  Unemployment goes to 10.2 per cent and the Dow jumps. "The U.S. economy is driven by consumer savings but consumers are hunkered down," he said. Anderson certainly sees significant growth from 2009 to 2010.

"But the little corner of the world that we operate in – the world of VC – innovators will continue to innovate. Adverse environment can actuallly produce the best start-ups," he said.

Sandy Miller, a veteran VC at Institutional Venture Partners (IVP) is "much more optimistic" than Anderson of SVB. He believes that "the financial markets almost invariably precede the recovery by two to three quarters. The financial markets have already recovered. There's an appetite for IPOs from institutional buyers, adding "The actual paramenters to go public have been virtually the same for the last thirty years." He also noted that "2010 will be a reasonably active year in the IPO market," and that "when the IPO market rises the M&A market responds as well." 

"Greentech company valuations are twice what we would expect for other sectors," he said. (Which is why he's staying away from those investments.)

"It's a great time to be an investor," Miller concluded.