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Semaphore's Annual PE Industry Confidence Survey results

Posted by Mark DiSalvo on Tuesday, January 25, 2011 @ 12:30PM

Is 2011 a Wasteland or Playground?

By Mark S. DiSalvo

It seems my industry colleagues have continued to be wrongly optimistic about their personal income against a backdrop of continued and decided lack of confidence in the economy and their national governments.  That appears to be the clear read comparing the raw data from the 3rd annual Semaphore Confidence Survey with last year’s results. 

Let’s start with pay.  At the start of last year 78% of the over 500 respondents to the 2010 Confidence Survey believed they would earn more money than the prior year.  The truth was that only 36% of this year’s respondents reported they did in fact earn more than the prior year.  Importantly though is that only 11% of respondents earned more money two years ago against that prior year baseline, clearly signaling at least a change in how some shops are valuing their talent. This must be counterweighted by the realization that 45% earned less than last year – carry not being what it used to be.  Nonetheless, not unlike last year, my colleagues firmly believe that the next year will provide the big score as nearly 75% of this year’s respondents believe they will earn more money than last year.  If they are right, then next year the national deficit will be on the decline despite no increase in upper tier taxes or capital gains and the real estate market will be certain to see significant rebound.

Our peers demonstrated their personal income optimism with their LPs pocketbooks too. In the beginning of 2010, fully 98% thought they would make up to six investments.  The year did not go as strong as hoped with only 11% doing six deals or more, but 76% closed 1-3 deals. Further, those deals were as large as expected with 73% self reporting their deals were in excess of $25 Million in each discrete investment when they anticipated 76% of their deals would be above $25 Million in size at the time of last year’s survey. 

And in what are we investing?  Unlike the year before when our respondents chose three new investment areas in the top three, the industry stayed rather consistent. Enterprise Technology and Health Care were 1 and 3 and Social/Community Technology took the second spot in that list, breaking the top 5 for the first time.  Sustainable Energy/Cleantech and Gaming (not even top ten last year) were 4th and 5th.  Last year the survey indicated investors were apparently smelling money and opportunity in Obama-care. As one person noted, “…when you mess with 16% of the economy something’s got to break our way.” We’ve yet to see if that comment is correct or merely hopeful but investors intend to remain active, according to our survey, in that space.

The just over 500 who did reply this year were similar to last year’s mix of VC and Buy-out pros, with a slightly higher representation of operating executives responding.  One thing for sure is that this year’s mix of survey takers were very high on themselves believing that 78% (63% last year) were confident in their business and  84% (77% last year) confident in the person who sits down in front of their computer each morning. They even had increasing confidence in their bosses with 75% expressing that view - a full 25 points higher than last year and triple the year before.

This personal and professional confidence does not extend itself to America’s political leaders.  While respondents were hard on President Obama and his economic team with only 36% expressing confidence in the President; it was more that triple the 11% expressed last year.  His economic team did not fare as well with 49% (55% a year ago) dissing Larry Summers et al.  

A 7X return is spectacular in a year but when it comes to Congress it is de minimis as its favorability improved over last year’s 0% reply of confidence in Congress to 7% with 77% (65%) stating no confidence in the folks under the Capitol Dome.  Apparently it does not matter which party is in control of the Congress. State governments and state legislatures earned a doubling of confidence to 27% (you should know that the top states replying were MA, CA, NY, NJ, NC and IL).  While confidence has skyrocketed for the President and crept upward, however marginally, for other pols in America, international respondents had crushingly poor opinions of their governments with fully 71% having no or little confidence in their countries leaders, more than double the 31% of a year ago.  The preponderance of our international respondents were from the UK with most  replies coming, in order, from Germany, Switzerland, Japan, France and China. 

To see the highlights of the results of the 2011 Semaphore Confidence Survey please click here.  If you want to do your own comparison, the 2010 Semaphore Confidence Survey results are here.

As usual there was a bit of entertainment offered by our none-too-shy contributors. One offered that “This was a terribly written survey,”…alas.  There was the usual partisanship with strong comments about “not believing the positions the Republicans are taking” counterbalanced by charging that Obama “is a socialist with desire to make US a 3rd world country”.  While there is little danger of we becoming Sweden in a hurry there were many serious comments reflecting state budget shortfalls, pension liabilities, and a belief in significant New Year investment opportunity with many industry recommendations.  One notable recommendation offered was “I have never felt as strongly about the investment opportunity presented by vertical farming,” who knew? 

A cottage industry has grown about the infamous response in our inaugural survey “PE is dead and I wish my boss were too.”   Many wondered where “he” was and hoped he would surface. He didn’t.  One survey taker suggested that “he must be serving time without access to internet.”  Many have tried their hand at PE Killer’s NY Post style headline writing skills (maybe he got laid off from Wall Street in ‘08 and is now working for Murdoch?).  One offered that “VC is a wasteland. PE is a playground (unless your name is Guy Hands.)”  Ouch! We’ll check back next year to see what side of the seesaw we will actually experience in 2011.  

Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Private Equity funds-under-management and technology diligence services. Semaphore currently holds fiduciary obligations as General Partner for seven Private Equity and Venture Capital funds, is a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.

Topics: VC, Venture Capital, Semaphore, general partners, diligence, technology, troubled funds, Venture Capital, equity, investment, venture funds, business advisory

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