IVCA Feature: 2015 Predictions From Members of the IVCA Board

IVCA Feature: 2015 Predictions From Members of the IVCA Board

January 21, 2015

With the holidays past and the new year three weeks old, it’s time to get some perspective on what is upcoming for 2015. After publishing links to some online Venture Capital and Private Equity prediction articles last month, the IVCA now turns to four of their own board members for their predictions on the still fresh calendar year.

In the survey, the IVCA asked their board membership to talk about general outlook in regards to both the VC and PE industries, or to choose from topics such as Valuation Multiples, Middle Market Fundraising, Venture Capital Fundraising and Exit Marketplace: IPOs. The four board prognosticators include...

  • Jim Macdonald, Managing Director at First Analysis
  • Jeffrey S. Piper, Principal at Svoboda Capital Partners
  • Bruce Barron, Partner at Origin Ventures
  • Bob Fealy, Founding Board Member and Vice Chairman of the IVCA

Jim Macdonald

Valuation Multiples are likely to remain high although I expect more deal specific variation – not all SaaS companies deserve 5x revenues...or insert your favorite multiple.

Venture Capital fundraising will continue to migrate to angels, previously successful entrepreneurs, and crowd funding. Institutional Venture Capital will become more difficult to find.

IPOs of fast growth venture companies will continue to be in demand, but expect some high flyers to have difficulty going public at their private market prices.

Jeff S. Piper

Valuation Multiples:  We expect valuation multiples to continue to be buoyed by a number of contributing factors, including a vibrant credit market, strong public equities, and ample availability of equity capital, in a very competitive environment.

Middle Market Fundraising:  We would also expect private equity fundraising to continue its upward momentum as healthy balance sheets could translate to increased LP allocations, particularly in the middle market and lower middle market where value building activities are abundant.

Exit Marketplace/IPOs:  The seller-friendly market should continue as private equity groups and strategic players alike look to realize healthy returns from the macro market rebound over the last five years.

Bruce Barron

Valuation Multiples: Valuation multiples have increased over the last year.  At some point I expect they will come down to more reasonable levels, consistent with historical multiples.   Whether this happens in 2015 or 2016 is difficult to predict.

Middle Market Fundraising: I expect that the large numbers of companies raising seed round financings in the last few years will impact how many companies will successfully raise their next round of money in 2015.  I believe that a lot of companies will feel the crunch of too much demand for funds and not enough supply to accommodate many companies seeking financings.

Venture Capital Fundraising: VC's have had a tough time raising money over the past few years.  With some additional exits in 2014 and more planned for 2015, I expect that some money will free up to fund some VC funds in 2015.

Exit Marketplace: IPOs: One recent article I read suggests that VC backed IPO's will have a record year in 2015.  A fair number of companies withdrew their IPO's in 2014 and are hopeful of embarking on IPO's in 2015.  If market conditions hold up, I expect 2015 to be a good year for IPO's.

Bob Fealy

In Summary: 

A year to learn,
Is VC more burn ‘n churn,
Or perhaps… just burn!

For PE, sell every “ex,”
Succumb to pay 10X?
And accept the wreck! 

With respect to Venture Capital, I expect angel and seed money investments to continue unabated, but the real questions are whether a significant number of companies started over the last three years has shown sufficient revenue growth and business model progress to continue to raise additional funding or be attractive as acquisition candidates and, further, how much series A funding will be available. My opinion is that revenue generation for many “investment-lite” start-ups has been much slower than expected, making further capital raises very difficult. 

For Private Equity, I expect strategic buyers to look to acquisitions as the only way to show growth, given the plodding economy. Therefore, portfolio companies will be dressed to sell to them and, for the next cycle, PE firms will have to hold their noses and acquiesce to paying nose-bleed multiples if they want to compete for deals, and then hope they can pay down debt aggressively before the next economic downturn occurs.