Silicon Valley investors' confidence tempered by high start-up valuations

Survey of Northern California investors shows they capped 2014 with increased confidence in start-up economy

Uneasiness about the high values being attached to major start-ups diluted Silicon Valley venture capitalists’ increased confidence in the start-up market as 2014 came to close.

Released Tuesday, University of San Francisco entrepreneurship professor Mark Cannice’s quarterly survey of about two dozen venture capitalists in Northern California showed a slight uptick in investor confidence during the last three months of 2014 compared to the previous quarter. That’s partly because Wall Street and larger tech companies have had a large appetite for start-ups.

But Cannice said confidence levels would have been higher if not for a cautious outlook. A number of start-ups, which have yet to produce profits, are being valued at tens of billions of dollars just a few years into their existence. The fear is that investors in the public stock market won’t buy shares at the high valuations being set by private market investors eager to get a piece of high-profile start-ups.

Robert Ackerman of Allegis Capital said in his survey response that venture capitalists have “run ahead of pragmatic reality” in certain industries.

“Excess investment capital flowing into the sector from nontraditional investors, looking to capitalize on apparent momentum, is pushing valuations and operating costs for young companies past the point of sustainability in many cases,” he said. “At some point, the market will need to reset and re-establish a sustainable equilibrium.”

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