Results of 6th Annual Semaphore PE Industry Confidence Survey
By Mark S. DiSalvo
Is irrational exuberance on the horizon? Will the Merry-Go-Round ever stop? Can the Masters of the Universe continue to rule? Notwithstanding the recent February Dow swoon the 2014 Semaphore Confidence Survey suggests No, No and Yes.
Extraordinarily, 91% of our over 500 respondents were confident in their own businesses, fully 50% higher than a year ago. 94% were confident in themselves, an all-time high, growing from78% last year. In contrast only 31% of respondents expressed confidence in the President with 49% stating a lack of confidence in him, significantly above last year’s 37% number. As miserable as that may be it is decidedly better than the leader of the other branch of government, Speaker John Boehner, who has an 11% favorable v 66% unfavorable rating. As dreadful a rating for sure but it is far better than Congress as an institution with 87% expressing no or little confidence in our elected officials and only 1% offering an expression of confidence in the House or Senate.
In contrast some 80%, nearly double last year’s 43%, remain confident in the PE/VC Industry, while 6% express confidence in the US economy and less than half at 22% enjoying confidence in the International economy. This is expressed in the near wild enthusiasm around expected deal number and size. 96% reported completing between 1 and 4 deals and a similar number expecting to do the same. More surprisingly is that over a quarter of us completed more than six transactions and fully a third anticipate exceeding that plateau in 2014. And the deal sizes are growing. Across venture and PE the average initial investment size is expected to be 50% larger in 2014 than last year.
So what will all this prospective deal effort be in? Health Care investing shot to top in expected activity, up from fourth. Enterprise Software got bumped to #2 and Energy oriented investing rocketed to third place and last year was not even in the top ten. With Business Services ranked fourth in prospective deal making with Digital Media and Financial Services tied for 5th place. Agriculture investment broke the top ten for the first time and came in a close 6th. Gaming was not only out of the money but also failed to make the top twenty. Social/Community Technology, On-line Consumer Retail and Food rounded out our top ten deal hopes.
And where does all this enthusiasm and confident take us. 77% expect to earn more than they did in 2013 with only 6% expecting to earn less. This on top of the fact that 65% earned more last year than they did in 2012 and 23% reported earning less.
For the second year in a row my industry colleagues continue to see the prospect of more income, more deal flow and high confidence in themselves, their peers, and industry. This clear read comparing the raw highlight data from the 6th annual Semaphore Confidence Survey with last year’s results suggests that our industry remains on the rise. Too much more enthusiasm and consequent riches and our seemingly hated colleagues in Congress might find it more politically palatable to eliminate capital gain rates on carry.
The distribution of respondents in the US remained nearly the same from past years - the top five were 29% California, 16% Massachusetts, 11% New York, 6% Connecticut and 5% Texas with only New Jersey dropping out of the mix (guess the GW Bridge traffic might have been too heavy to get our usual Garden State respondents to reply). DC 4% and Illinois came in at 3% and no other state represented more than 1%. Our US respondents had reasonable confidence in their state governments with 26% expressing confidence - at least in comparison to the US Congress.
International responses were quite different. We had our widest ever distribution of respondents with only the UK remaining on top with 37% of all international survey-takers with (10 points higher than last year) followed by 9% Canada, 7% China and 3% France rounding-out the top four just as they did the prior years. We received multiple respondents from Germany, the Philippines, Brazil, Russia, Japan, Ukraine, Viet Nam and single responses from14 other nations including our first ever from Bora Bora (must have been a PE partner on vacation!). International respondents had depressingly poor opinions of their governments with 5% expressing confidence in their countries leaders, down from 7% in 2013.
The 563 of us who did reply this year, up from 470 last year, was over weighted by third party professional participants compared to past years. The mix this year compared to the last year was VC (24% v 39% ), Buy-out pros (25% v 24%), Limited Partners (6% v 13%) operating executives (7% v 6%) and third party professional (38% v 18%). Hmmm…charting this back to the income responses, perhaps the continued increase in income levels is attributable to the transaction fees and expenses associated with our explosion of deal numbers and values.
Comments this year were more muted in tone than past years and can be viewed on the survey highlights link below. Perhaps the tight bandwidth contributed to the lack of wit expressed. Here is one none-too-pleased respondent commenting on the survey itself:
“Well done, like an overly charred steak forgotten on a summer BBQ grill. Terrible survey.”
I hate when that happens as I like my steak very rare.
Hope everyone’s expectations are indeed met in 2014. See you next year.
To see the highlights of the results of the 2014 Semaphore Confidence Survey please click here. If you want to do your own comparison, the 2013 Semaphore Confidence Survey results are here.
Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of troubled Private Equity and Venture Capital funds under management. Semaphore currently holds fiduciary obligations as General Partner for six 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, London and Dallas.