Mood Disrupted

Each quarter a gaggle of Bay Area venture capitalists are asked, you know, how does everything feel? Aside from totally great, of course. What’s your sense of things, other than that you are changing the world utterly for the better?

This quarter’s index measurement fell [to 3.89] from the previous quarter’s index reading of 4.02. The Q3 reading is the first recorded decline in confidence in two years.

In the new report Professor Cannice indicates that “The lower Q3 index reading raises some concern for the near to medium term outlook for the high-growth venture environment.”

The concept of Valley investor “confidence” is unusual. In a survey context, confidence is usually something that respondents have in outside entities: in a government, in an economy in general, in markets that are subject to a wide variety of outside forces. But here, the question seems almost circular. The respondents are asked how confident they are in “the future high-growth entrepreneurial environment,” the growth of which is, when things are going well, disproportionately contingent on venture capitalists’ confidence. A very confident venture capitalist is a venture capitalist who can say, “I have a shot at turning this company, which makes no money, into a billion-dollar acquisition target for one of a small handful of large flush companies,” or, much less often, “I think one of my very savvy early investments might be able to go public soon.” There are factors that they cannot control, which might make them less confident; if just one giant tech company slows down its spending, hundreds of startups’ prospects suddenly get dimmer. But the way investors respond, here, does not suggest they are too concerned about that, at least for now. They seem to be more concerned with talk. “The ‘bubble’ talk has grown louder, especially discussion about high valuations and burn rates,” says one investor (this despite “rampant disruptive innovation,” the report later adds). His answer to the question about confidence, in other words, is to note that, while everything is great, some other people sound less confident, talking about “burn rates” and “revenue” for reasons that he cannot fathom and which are certainly not at all strategic, and none of this makes any sense to him, because the fundamentals are just so strong, but there you have it, there’s been some talk, oh well. It’s the confident leading the confident, in Silicon Valley! Which, counter-intuitively, is why this metric actually might mean something.