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Silicon Valley VCs Perk Up

Inspired by new waves of technology developments and blockbuster deals, VCs are feeling better at the start of 2012.
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Venture capitalists in Silicon Valley are starting to feel a bit more optimistic, thanks to megahit deals sending fresh waves of excitement -- and cash -- into the industry and tidal waves of new possibilities in mobile, cloud and social technology.

The Silicon Venture Capitalist Confidence Index jumped to 3.79 in the first quarter from 3.27 the previous quarter, reversing a slide in the previous three quarters. The index, from the University of San Francisco School of Management, is based on a scale of 5, with 5 representing high confidence. The study surveyed 34 VCs in late March about their outlook for the next to six 18 months for the entrepreneurial environment in the San Francisco Bay Area.

The combination of more startup exits and generally improving stock markets, especially the tech-heavy Nasdaq Stock Market where most venture-backed firms go public (if they are so lucky), pads the pockets of and bolsters the attitudes of VCs. Sometimes, VCs get lucky. For example, Facebook is headed toward its IPO next month, which is expected to be valued in the ballpark of $100 billion, setting off a flurry of excitement in Silicon Valley.

VCs are also feeling optimistic about the bevy of technological opportunities in the new-ish, still-growing and transformative industries of mobile, cloud and social technology.

Related: Six Mistakes Entrepreneurs Make When Seeking Venture Capital

Meanwhile, a widely-watched industry report, the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, released last week shows that the VC industry has continued its long-time contraction with VCs backing fewer startups with less money in the first quarter than in previous quarter. Some VC firms have shuttered in recent years.

The VCs left standing are feeling more optimistic about the future, according to Mark V. Cannice, professor of entrepreneurship and innovation at the University of San Francisco School of Management. “If they survive that contraction, they see the light at the end of the tunnel,” says Cannice, who produces the confidence index.

With fewer -- but higher quality -- companies starting, some in the Valley expect increased competition among startups. In addition to having to hunt harder for quality talent, startups there face increasingly high rents and startup costs. And the uncertain pace of the economic recovery continues to keep VCs cautious. But with the Facebook IPO just over the horizon, the rest of the year “appears promising,” the report says.

Related: A VC Reflects on Instagram, the Dot-Com Bust and What It All Means for Hungry Startups

Comments from VCs quoted in the report reflect a strong vein of optimism:

  • “It appears that our economy is finally showing signs of a solid recovery with a revitalized, pent-up initial public offering market, registering healthy returns for venture investors." -- Igor Sill, Managing Director of Geneva Venture Management, based in San Francisco.
  • “The innovation throttle in Silicon Valley is running full open. There is tremendous creative development underway in mobile, cloud computing, social media and security -- all at the same time. . . In the future, we will look back on this period of time as one of the golden ages of innovation.” -- Bob Ackerman, Managing Director and Founder of Allegis Capital, headquartered in Palo Alto, Calif. 
  • “With the venture industry’s trend of consolidation, there may also be consolidation among startups. . . In the medium-to-long run, this will lay a foundation for stronger business growth, as recently, and anecdotally, it seems like everybody wants to be a founder and nobody wants to be an engineer.” -- Brian Panoff, Principal of Granite Ventures, headquartered in San Francisco.

Related: Facebook's Instagram Buy to Kick Off Venture Capital Feeding Frenzy

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