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Washington venture capitalists reveal optimism for Q3

Washington State’s venture capital community has a mixed outlook for the coming quarter, according to the results of the Q3 2009 Venture Capital Outlook Survey from the Washington Techn

Washington State’s venture capital community has a mixed outlook for the coming quarter, according to the results of the Q3 2009 Venture Capital Outlook Survey from the Washington Technology Industry Association.

While the latest survey predicts continued layoffs among portfolio companies and smaller deals, 80 per cent of those surveyed plan on making one or two new investments in Washington state companies in Q3. Overall VCs predict better deal flow quality and quantity in the coming months.

"Entrepreneurial companies that are resilient, well-managed, unique businesses are passing our version of the ‘stress test’ and getting funded," says Andy Dale, managing partner at Buerk Dale Victor. "The local market has stabilized in terms of the number of companies and capital invested and we expect improvement in the quarter ahead. Local VCs are actively managing their portfolio companies and looking for new investments. We are navigating for long-term success and anticipate a brighter 2010."

The survey, which is sponsored by Ernst & Young, found that 50 per cent of respondents predict their portfolio companies will reduce workforces by more than ten percent in Q3, compared to just 14 per cent of respondents last quarter. On a positive note, ten per cent of those surveyed predict a workforce increase of more than ten per cent, while no one expected hiring to increase in Q2.
   
All respondents predict stable or improved deal quality and, for the first time this year, not a single participant in the survey expected worse or declining deal flow. The majority of VCs see valuations remaining stable, with the balance predicting valuations will fall.
   
The survey also found that the average size of new investments is decreasing. Investors see 40 per cent of Q3 deals falling in the USD1-3m range and 50 per cent falling in the USD3-6m range. Last quarter, 71 per cent of deals were expected to fall in the USD3-6m range.
   
While the size of investments is decreasing, the outlook for new investments in Washington State is positive. Eighty per cent of participants in the survey plan to make one to two new investments in Washington state companies in Q3.

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