VC Outlook for Startup Funding in 2012: ‘Optimism Wanes’

The National Venture Capital Association (NVCA) and Dow Jones VentureSource just released their sixth annual Venture View survey today, polling 500 VCs and CEOs of venture-backed companies. If their instincts are right, all the happy go-go funding news, we’ve been hearing—including $17.8 million for TaskRabbit, $35 million for Outbrain, and $2 million for Zipmark just in the last 24 hours—doesn’t tell the full story of what to expect in 2012.

Outlook has shifted from optimism to realism, with CEOs more optimistic than investors themselves.

According to the press release:

When compared to last year’s survey, forecasts from venture capital professionals (VCs) and venture-backed CEOs are less confident and more measured for the coming year, with few notable bright spots. There is considerable enthusiasm for information technology (IT) investment, particularly on the consumer side, as well as start-up company momentum, especially job growth. Yet, predictions in critical areas such as IPOs and venture fundraising are tepid at best, reflecting ongoing, unavoidable challenges faced by VCs and entrepreneurs alike.

“Due to the large number of market and political factors at play, it is incredibly difficult to predict the state of the venture capital ecosystem in 2012,” said Mark Heesen, president of the NVCA. “Despite the fact that venture capitalists and entrepreneurs are well positioned to thrive, externalities are keeping optimism at bay.  The venture industry is not an island unto itself and economic instability here and abroad, coupled with a number of public policy issues poised to impact the start-up community, can offset the positives such as an improving IPO pipeline and opportunities for FDA and capital markets reform.  These uncertainties are clearly to blame for the less sanguine predictions this year. However, it is encouraging to see venture capitalists and entrepreneurs forecasting a number of positives including increasing valuations, headcount, and global activity amidst the realities that face our industry.”

Fifty-eight percent of VCs anticipate a seed and early stage funding shortage next year. CEOs are likewise anxious: 67 percent predict raising follow-on money will be equally or more difficult in 2012 than in 2011. Couple that with the fact that 75 percent of CEOs plan to raise money in 2012 and you have a recipe for a seed stage slaughter.

That “startup winter” you’ve been warned about? Like the snow we’ve been spared in December, maybe it’s not coming until after the New Year.

VC Outlook for Startup Funding in 2012: ‘Optimism Wanes’