Despite increasing competition, most Venture Capital (VC) fund managers don’t feel pressure in sourcing attractive investment opportunities in 2017, according to a survey by Preqin.
According to Preqin, 49% of the 56 VC fund managers surveyed in June reported increased levels of competition for transactions, while 47% reported no change. Only 4% reported a decrease in competition. Simultaneously, 32% of fund managers reported pricing for portfolio companies is higher than 12 months ago. Only 13% reported that pricing had gone down.
Compared to one year ago, 54% of fund managers are reviewing more investment opportunities. Of those surveyed, just 11% are reviewing fewer opportunities. Preqin speculated that the hunt for more opportunities is being done in response to the above.
Preqin also reported positive outlook for competitive deal-making, as 35% of fund managers viewed pricing for portfolio companies as a “major challenge facing the industry” in the next year.
Of these fund managers, 65% expect to deploy more capital in the next year—including 44% that expect to deploy significantly more.
Oddly enough, very little has changed in terms of difficulty. The survey reports that 70% of fund managers see no change in difficulty finding attractive investing opportunities. In fact, 15% have equally found it more difficult or easier.
The main issue for fund managers in the coming year turned out to be the exit environment —with 52% of those surveyed citing concerns. Fundraising and performance were also highlighted issues at 37% and 35%, respectively.
“In keeping with trends we are seeing across the private capital industry, it is clear that strong fundraising is putting pressure on deal-making in the venture capital market. Large influxes of capital are causing dry powder to soar, and asset pricing is rising as a consequence, forcing fund managers to find increasingly innovative ways to source attractive deal opportunities,” said Preqin’s Felice Egidio, Head of Venture Capital Products, in a statement. “However, this does not seem to be the largest concern of fund managers. Although a significant proportion reported that it was harder to find attractive deals, an equal number felt it was easier. Venture capital has long been a fragmented industry, with many firms specializing in specific areas that may be less vulnerable to competition. This may explain why, although the effects of high levels of available capital are a key challenge for fund managers, they are more concerned with being able to exit their investments in favorable circumstances.”