Dr Jeff Cornwall

To those of you who deal regularly with venture capitalists you probably think this is the start of a bad joke. How do you tell when a VC is feeling pessimistic? Well, the University of San Francisco has created an index to measure the mood of VCs — and as dour as they usually seem, their confidence plummeted during the last quarter of 2007. (I am a horrible joke teller, so if you have a punch line to offer for my hypothetical joke, please pass it along!)
“The Q4 Silicon Valley survey indicated a significant decrease in Bay Area VC confidence in the high growth entrepreneurial environment to its lowest reading in 4 years,” says Mark Cannice of USF.
And the mood overseas is not much better.
“The China Q4 survey indicated a modest decrease in China VC confidence in the high growth entrepreneurial environment. This decrease was primarily attributed to a changing regulatory environment and inflated valuations.”
Here is a graph that displays this sudden drop in the confidence of VCs.

So what does this mean?
– VCs will likely now look at each possible deal with even more scrutiny. They will become even more diligent in reviewing each deal and will likely be quicker to throw deals that give them any heartburn out the door.
– They will also in all probability offer less favorable terms to protect their returns. The assumptions they use to model growth will become much more cautious, leading to much lower valuations.
– And they will be quicker to pull the trigger on replacing management if the entrepreneur starts to falter.