Confidence is up among Silicon Valley VCs

VCs are feeling cheery about 2010, suggests a new study by University of San Francisco Business School professor Mark Cannice, who interviewed 33 Bay Area VCs in January to compile a “confidence” index.

Cannice reports that when it comes to this year’s prospects, investors are modestly more confident than they were the fourth quarter of last year, and far more confident than they were a year ago. As of last month, they registered a 3.48 on Cannice’s 5-point scale, up from 3.37 late last year and up from a low of 2.75 in the fourth quarter of 2008, according to the quarterly Silicon Valley Venture Capitalist Confidence Index.

The reasons for the VC optimism are varied. Among the 33 VCs interviewed was Bruce MacNaughton, a partner at Crosslink Capital, who said to Cannice: “We’re seeing more promising startups than we’ve seen in quite awhile.”

Savinay Berry, vice president of Granite Ventures, said: “Planning and budgeting visibility for enterprises is much better than it was last year, when the future looked opaque.”

Deepak Kamra, general partner of Canaan Partners, attributes the optimism to “exuberant public markets and expected increases in tech spending by enterprises and consumers.”

Victor Hwang, managing director of T2 Venture Capital, meanwhile, took a different view, He told Cannice that although the “macroeconomic situation has stabilized,” he said “big companies” will continue to be tight on cash for several years owing to the recession, a situation that will force entrepreneurs to think more creatively.

Whatever the case, there’s little doubt that VCs see bright skies on the horizon, largely owing to a loosening IPO market.

“Beyond the dozens of information technology companies that are in registration,” said Terry Schallich, managing director of Pacific Crest Securities. “We’re tracking another 20-plus companies that have bankers and that have had organizational meetings but haven’t yet filed.”

His enthusiasm is not surprising, as London-based Barclays estimates that U.S. companies will raise upwards of $50 billion in 2010 through IPOs.

In addition, the M&A market should heat up quickly, the VCs said. In a survey published in this month’s Venture Capital Journal (an affiliate to PE Week), Mitchell Kertzman, managing director of Hummer Winblad Venture Partners, was among numerous VCs who said he was expecting a flurry of acquisitions in 2010.

“M&A is back big time,” Kertzman said. “Almost all the large acquirers sat on their hands during the downturn. That is done now.”

Still, investors may well be getting ahead of themselves. Accel Partners’ Jim Breyer, who has backed Facebook and sits on its board of the social networking company, told an audience last week that the startup has no plans to go public in 2010.

And in an unexpected move last week, the popular local review site Yelp—which has raised $33 million in venture funding over the past six years from Benchmark Capital, Bessemer Venture Partners and DAG Ventures—received an additional $100 million commitment from the private equity firm Elevation Partners. The investment is a clear signal that Yelp—in acquisition talks with Google as recently as December—intends to steer clear from an IPO or an M&A exit anytime soon.