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Venture capitalists think that the good times will continue to roll in 2008, according to a survey released by the National Venture Capital Association on Monday, Dec. 17. Heading up the 2008 forecasts is belief that investment in cleantech will continue to surge; the volume of exits will increase; and that investment levels will stay steady, with vehicle sizes getting larger and returns to limited partners improving. However, the predictions aren't all rosy, as venture capitalists are concerned about the economy and high valuations in cleantech. Conducted in early December, the NVCA survey consisted of predictions from over 170 venture capitalists in the U.S. A majority of respondents believe that the venture capital industry's consolidation will continue in 2008; with 57% predicting fewer firms around at the end of next year. Moreover, 84% think that those that remain will be raising the same size or larger investment funds. While survival of the fittest shrinks the ranks of venture firms, its thought that 2008 may be the year that angel investors come to the fore. "2008 will be the year that the impact and importance of angel investors is embraced by traditional VCs," commented David Spreng, a Managing General Partner at Crescendo Ventures. "Angel groups are rapidly professionalizing and structuring their organizations... and in 2008 they will emerge from the shadows to take a more prominent and visible role." Overall, the survey says that venture capitalists are predicting only moderate investment growth next year, with 71% of respondents pegging 2008 investment levels between $20-29 billion, on par with 2007 levels. However another 25% are even more optimistic, predicting totals in the $30-39 billion range; and leaving only a small percentage that feel investment levels will decline dramatically. The highest growth is expected to come from cleantech, which 80% of the respondents predict will attract higher levels of venture financing in 2008. However, 61% of respondents also believe that CleanTech sector will be overvalued next year. Venture capitalists are more divided when it comes to where the IPO market is going. 44 percent said that things will continue to recover from the post-bubble slump, but at a slower rate than in 2007. On the flip-side 22% see a flat IPO market and 19% think it will weaken in 2008. Closely tied to IPO activity is a venture firm's bread and butter -- M&A exits. On the acquisitions side, the venture industry is split on how deal values will trend; 35% said valuations will be higher; 27% say lower; with the remaining 38% thought they will remain the same. However, the 55% of respondents believe that deal volume will increase in 2008. Among the dissenters from that opinion is Don Caldwell, CEO of Cross Atlantic Partners. "Exits will dry up significantly in 2008 -- by at least 50% -- because there's going to be an economic downturn; as a result, IPOs will essentially disappear," says Caldwell. "Similarly, when there's uncertainty in the economic environment, the acquirers fold their tent, too; and, for those acquirers who stay in the market, it means that the value of deals will drop. The net result of this is that LP distributions will drop sizably." Indeed, the health of the economy is a major concern for venture capitalists who have taken a skeptical view on 2008. A full 60% believe the economy will decline; with 21% predicting it will stay the same and 19% betting on an improvement. With factors like sub-prime credit problems and high oil prices weighing on it, the economy will be hard pressed not to slow, but a full-fledged recession isn't necessarily in the cards, says Walter Kortschak, a General Partner at Summit Partners. "[There'll be] slower GDP growth, a tightening in consumer spending, more pain on the sub-prime mortgage front," said Kortschak, " but corporate earnings growth, while likely to slow, will ensure the United States stays out of a recession."  Deal Video
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