Newswise — The Fox School of Business at Temple University and the National Association of Seed Venture Funds (NASVF) have released a new survey indicating that about half of the organizations polled reported that 25 percent of their portfolio is in-loss.
The survey respondents were comprised of NASVF and non-NASVF members that included angel investors, angel funds, early- and seed-stage venture capital funds and economic development agencies that provide investments for startup and early-stage emerging companies.
Dr. Raj Chaganti, professor of Strategic Management at the Fox School of Business, said the survey results “seem to reflect the fragile state of the economy and the climate for risk capital in the country.”
The wide range of organizations participating in the study represented seven regions of the U.S.: Northeast, Mid-Atlantic, Southeast, Midwest, Southwest, West and Northwest.
“The overall outlook for the industry was relatively pessimistic, and the confidence level of the investing organizations was even lower,” Chaganti said. “However, as one might expect, there were significant differences between regions in the country.”
For example:• Organizations in the Northwest were the most optimistic on the future of seed capital investment; they were followed by the organizations in the West, Midwest and Southwest; organizations in the regions east of the Mississippi were more pessimistic.• Organizations in the Northwest were three times more confident than their counterparts in the Mid-Atlantic to raise new funds, secure follow-on funding and to make at least one exit within the next six months.• More than 50 percent of the investors west of the Mississippi were in the process of raising new funds within the next six months, while only 25 percent in the Southeast indicated they were in the process of raising new monies.• Twice as many Western early-stage investors were raising money as Southeast investors.
“What really caught my eye is that the Western and Midwestern seed funds expect to raise almost 11 times the amount of funds as Southeast funds,” Chaganti said. “The Western and Midwestern investors expect to raise five times as much as the Northeast, which is comprised of early-stage investors in Vermont, New Hampshire, Massachusetts, Connecticut and New York.”
Three other pieces of information were gleaned from the survey – all from the Southeast:• Southeast funds were leading the way in securing follow-on funds; • They had the highest expectation of exiting their investments; and• They had the highest expectation of returns on their exits – at four times their investment – compared to the lowest in the group, the Southwest, with two times their investment.
Overall, Chaganti said, “Four-times return on invested capital is the new normal. Home runs that pulled in 10-times return in the past may not be seen for a while.”
The survey also captured the differences in investment outlook by type of investor – Angel Funds, Seed Funds, and Venture Funds, which usually invest after the first two have put in money. The survey indicated that:• Angel Funds reported an upbeat outlook for raising capital over the next six months.• Seed Funds responded that the next six months would be rocky in terms of raising new capital.
The Fox School and NASVF will produce a survey of early- and seed-stage funding sources twice a year to monitor industry outlook, as well as the confidence levels and plans of investing organizations.
Jim Jaffe, president and CEO of NASVF, was pleased with the results. “Although pension funds and individual investors were pummeled in the last year,” Jaffe said, “early-stage investors still believe in the development of commercially viable enterprises that could deliver long-term value and rewards to those who invested in a turbulent time.”
For a full copy of the report and more information about the Fox School, visit www.fox.temple.edu. A copy of the report is also available at www.nasvf.org.
The Fox School of BusinessEstablished in 1918, the Fox School of Business at Temple University has a distinguished tradition of preparing business leaders, professionals and entrepreneurs for successful careers. Today, it is the largest, most comprehensive business school in the greater Philadelphia region, and among the largest in the world, with nearly 6,500 students, 155 full-time faculty and more than 52,000 alumni.
National Association of Seed and Venture FundsThe National Association of Seed and Venture Funds (NASVF) is a global nonprofit organization with 600 individual members in 43 states and four countries. NASVF promotes investments in seed and early-stage companies by supporting entrepreneurship and job creation through the formation of innovation capital programs. NASVF connects investors, economic development organizations, and tech transfer professionals in building their local economies through commercializing technologies.
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