VC survey: Money still flowing to green and biotech

NEW YORK – Venture capitalists expect the U.S. recession and unstable markets to slow investment and fundraising opportunities, according to a survey by professional services firm KPMG LLP.

At the same time, those surveyed believe investment money will continue to flow into areas related to China, India, green technology, Internet services and biotechnology.

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In polling 201 venture capitalists, corporate buyers and investment bankers, KPMG found that 69 percent of respondents believe the United States is in a recession; 47 percent indicated they believe it will be a mild, short recession; while 12 percent expect the recession to be severe and extended. Seventy-four percent believe the stock markets will stabilize within a year, but the remaining 26 percent expect an extended unstable market environment.

These current economic conditions are expected to take their toll on venture capital activity in the coming year.

Compared with the nearly $30 billion in U.S. venture investment in 2007, 49 percent of those surveyed said the current economic conditions will lead to decreased investment activity in 2008, with 19 percent expecting a reduction of more than 10 percent. Similarly, 49 percent said market and economic instability also will lead to decreased fundraising opportunities for the remainder of the year.

Among those surveyed in the Northeast:

• 34 percent expect venture investment in Northeast companies, which totaled about $3.6 billion in 2007, to remain flat this year.

• 65 percent expect increased investment activity in the Northeast green tech sector in 2008.

•61 percent expect private equity firms to increase their presence in the Northeast venture-capital market.

• 41 percent believe the Northeast has the highest level of quality investment opportunities in the United States.

• 48 percent expect China to attract most Northeast investment dollars.

The the survey, released April 16, was conducted by KPMG in conjunction with AlwaysOn, the venture capital new-media organization.

“Given the state of the economy, venture capitalists are signaling some caution in terms of their investment approach,” said Brian Hughes, a KPMG partner based in Philadelphia and co-leader of the firm’s venture-capital practice. “But they are indicating that although overall investment may decrease, there will still be demand for investments in certain geographies and industry sectors that project the most growth in the near future.”

Despite the cautious view on overall venture capital investment activity, KPMG found that green technology, Internet services and biotech remain the focus of the VC community and will continue to see increased investment.

In fact, when asked which sectors would see the largest percentage of their available funds, 73 percent indicated technology and Internet services, 11 percent said green tech, and 7 percent said biotech. In addition, 69 percent said green tech investment will increase, 47 percent said Internet services investment will increase, and 42 percent said biotech investment will increase. However, 55 percent of respondents indicated that obtaining seed money would be more challenging for entrepreneurs.

With regard to where the money will flow geographically, outside the United States, 69 percent said China will continue to see the lion’s share of U.S. investment dollars, followed by India (20 percent), Western Europe (7 percent) and Israel (3 percent).

For more information about KPMG LLP, the U.S. branch of audit, tax and advisory firm KPMG International, visit www.us.kpmg.com. To learn more about AlwaysOn: The Insider’s Network, visit AlwaysOn.GoingOn.com. The KPMG-AlwaysOn venture-capital findings are available online at www.PRNewswire.com.