Nearly half of venture capital providers say lending will be more restrictive in the next 12 months, according to a study by Pepperdine University’s Graziadio School of Business and Management.
At the same time, 70.5 per cent agree that demand for venture capital will grow.
Findings on the venture capital industry also shows that investing in clean tech companies is now more popular than software and medical devices. VCs report investing the largest concentration of money in clean tech (14.5 per cent) followed by software (13.5 per cent), medical devices (12.2 per cent) and biotech (9.8 per cent). More than 35 per cent of investments are expected to be in California.
Few venture capital providers have plans for raising funds in the next year and they are taking smaller stakes in investments. Most equity investments made by venture capital firms are minority interests and range up to 49 per cent ownership.
Approximately 40.3 per cent report taking equity stakes in the range of 20 to 49 per cent while another 49.1 per cent indicate less than 20 per cent. Funds report applying a 20 per cent discount to equity pro rata value for making minority investments.
In addition, they have high expectations for return on investment.
“Results from our study suggest that the venture capital community is vulnerable to the same pressures and constraints as other segments of the public and private lending industry,” says the study’s author, Dr. John Paglia, an associate professor of finance at Pepperdine University’s Graziadio School of Business and Management. “The long-road out of the current recession and tepid marketplace has made it easier to simply keep money locked up.”