The WTIA venture capital survey predicts declining valuations

It is going to get worse before it gets better. That's how I read the latest survey from the Washington Technology Industry Association. All of the venture capitalists surveyed predict that deal valuations will decrease across all stages of privately-held companies in the first quarter. And -- not surprising -- no one expects any initial public offerings.

The survey found that 22 percent of VCs expect substantially lower valuations at the early-stage, while 78 percent predict moderately lower valuations. At the mid-stage, one third of respondents said that deal values will decrease substantially while 67 believe they will decrease moderately.

The interesting thing: No one is predicting higher valuations for the first quarter.  

We've seen some of this first hand. Yesterday, Smartsheet.com raised $1.25 million, but it was at a lower valuation than the previous round.

Other entrepreneurs simply are bypassing venture funding all together since they don't want give away a portion of their companies at the deal terms now available.

"My advice to entrepreneurs is to delay raising money right now if you can. Terms are hard to swallow," one Seattle Internet entrepreneur told me yesterday.

No wonder that access to capital was the number one issue cited by VCs in the survey.

Thirteen percent of VCs said that hiring will decline by more than 10 percent in the first quarter, while 75 percent said hiring will stay the same.

Obviously, we've tracked a number of layoffs in the tech sector in recent weeks. And -- based on our tip line of layoffs -- it doesn't look like it is going to get better for some time.

This is not the first survey predicting tough times ahead. The WTIA surveyed technology companies in the state last October, finding that more than half expect demand for their products to decrease. Another 56 percent said that the economy has greatly reduced their hiring outlook, while 38 percent said they have reduced or delayed their capital fundraising efforts.