Flash analysis: the tech startup investment environment, Q3 2011

1. Summary

With the stock market gyrating, as many companies shutting down as starting up and big IPOs possibly going on hold, we decided to ask GigaOM’s readership if they think startup investment is in trouble. We wanted to know what they think about investment opportunities: What’s hot, what’s not, which sectors might favor buyouts versus IPOs and how it all will change in the near and longer term.

We posted a survey on GigaOM.com from August 19 through 22 and got responses from 117 readers. This is a relatively small sample size, but it represents a cross section of technology ––thought leaders, from general readers who do not professionally invest in startups to active investors such as venture capitalists and those with a mergers and acquisitions role at their company. Readers of this report shouldn’t try to extrapolate the survey respondents as statistically representative of a larger group but rather use it to take a quick pulse on sentiment.

Highlights from the survey include:

• Overall, survey respondents were pretty positive about the current investment environment, although the professionals were a little more cautious.
• All were keen on cloud computing and mobile services, now and in a slightly extended horizon (12 to 24 months).
• Gaming was also an attractive investment segment, although the professional investors were less excited about it.
• Greentech investment will gain momentum over time, according to the respondents.

This research note also includes an appendix of readers’ open-ended responses. For identity protection, we have chosen not to include the names of respondents.

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Source: GigaOM Pro

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Source: GigaOM Pro

Our survey of both interested observers and professional investors (VCs, M&A, active investors) showed some wide-ranging opinions about the state of startup investing. About half of those surveyed felt that the overall startup-investing environment was very strong (hot/bubble), while the other half thought things were slow to bad. About 22 percent (the bottom two answers on the scale ranking) thought things could be classified as bad, while another 29 percent of the more pessimistic crowd classified the environment as slow. This fairly even distribution of answers shows that, just as in the overall coverage of the startup investing market, there are significantly different views on the health and “heatedness” of startup investing.

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Source: GigaOM Pro

While it should be cautioned, as mentioned in the introduction of this research note, that overall sample sizes were small and that our survey cannot be interpreted as statistically representative, it is still interesting to look at the breakdown of feelings about the startup investing environment by professional investor versus interested observer.

In general, dividing respondents into investors and observers, our survey found that those who professionally invested in startups were generally more bearish about the overall environment: Thirty percent said that things were in bad shape, as compared with 17 percent of those who were not professional investors. Nonprofessionals were more positive about the overall picture, with 38 percent seeing the market as hot and 13 percent viewing it as bubblelike, though the differences weren’t extreme. At the very least, then, in our limited sample, a greater percentage of those who are professionally investing in startups tend to see the market as in bad shape due to economic factors.

It will be interesting to observe in the coming quarters how the opinions of both professional investors and interested observers change as the economy continues to struggle. Early indications that some segments, such as cleantech, have seen significant drops in venture funding could be an indication of a broader view that the economy and overall investing environment is turning south.