CB Insights has a report on a topic I mentioned last week, the decreasing deal sized in New England. The report shows that the “In Q2 2010, the median seed VC deal size in both NY and Massachusetts were $425k and $480k, respectively, meaning entrepreneurs were raising smaller rounds.”
Interesting stuff – visit CB Insights here to see their take.
What is happening with venture/angel deal sizes in New England? Why are things getting smaller? It may be the sudden angel/seed renaissance… while the CB data does not include later stage investments, I think that New England did not have any huge ($50 million +) investments last quarter, which would impact the data I mentioned last week by driving down the average deal size… but I think something strange is going on.
These guys are the number 1 sports one app in iTunes, if I understand their tweet correctly! Wahoo! A great TechStars Boston company.
Chris, an investor with Common Angels, has a great post from the 16th (I came across it via PEhub.) Chris interviews Andy Payne, a Boston area startup guru exec. Check it out!
PWC/NVCA venture capital data is out for the first half of 2010. Happily, New England venture investing is moving along with the rest of the US, and nicely increased from the first half of 2009 – when looked at from a first half of the year perspective.
But the Q1 to Q2 data shows a different story.
The thing that is interesting to me about the New England data is that NE deal volume stayed flat from Q1 2010 to Q2 from 96 to 95, while the entire of the US was up 740 to 906. Also, the dollar volume in NE was DOWN from $796 million to $581 million, while the US was up $4.87 billion to $6.52 billion.
Why was New England down while the US was up?
It could be partly because all the deals have yet to be reported in New England, but I don’t know if that would explain such a big drop in dollars invested vs. the rest of the US. This also means that the average deal size in NE is also down quite a bit. I know there is a ton of angel investment activity in Boston, which is a great thing, but does this mean the later stage VCs are gone? Anyone have any ideas??
My post yesterday on the Northeast venture capital outlook got some good traction, and was reposted on Venturefizz. Today PEhub pointed me to a new NVCA/Deloitte survey of 500 VCs on their outlook projections. US VCs think that the number of venture firms in the US is going to shrink, in “the United States [...] 92 percent of U.S. venture capitalists expect the number of venture capital firms to decline.”
I guess that’s not too surprising. The venture market in the US is undergoing some pretty significant changes, with some very established firms not able to raise new funds, some newish funds not being able to raise 2nd or 3rd funds and some other established firms raising new funds, but shrinking in size.
However, there do seem to be a larger number of seed/micro-VCs coming into the mix (I am thinking of Rob Go & company’s new fund, and the seed fund announced by Gabriel Weinberg and friends, all the TechStars like incubators that provide funding, etc…) I have no idea what these funds will do to influence the overall number of funds in the US. I doubt that they can make the aggregate number of funds “break even” as in not shrink – but the can help offset the total number of fund decline somewhat.
What these funds can’t do is dramatically increase the total DOLLAR amount of VC available in the US. I doubt that the entire super-angel/micro-VC funds raised in this and last year will total $500 million – the amount of VC $ lost as a result of a single big traditional venture fund going out of business. (I have no data to prove this, it is a gut reaction. I do like numbers if anyone has them.)
I don’t think this is going to hurt the sector that I really love, the internet space. I won’t get into the whole capital efficiency thing that is now possible for internet companies – it’s well covered. But I do wonder how clean tech and bio tech – two capital intensive spaces – will deal with the capital shortage. I think it will be ugly for them.
Finally the survey asks VCs why they think the world is shrinking. The results are:
Factors cited most often for an unfavorable investment climate in the U.S. were difficulty in achieving successful exits (88 percent); unfavorable tax policies (59 percent) and unstable regulatory environment (53 percent). The prevalence of these challenges represents a stark contrast to responses five years ago when the survey posed a similar line of questions.
I continue to believe that the first reason, the poor exit environment, is the major driver of problems for the US venture industry. In particular, the lack of IPOs is a major issue. When a company goes public it not only raises a lot of capital to expand, it also generates wealth that flows back into the entrepreneurial/VC ecosystem (via limited partners and employees options). Additionally, public companies get a lot of press – press that inspires other executives to think about the glories of founding their own companies. This is press that continues as the company grows (unlike press that happens after a company is aquired, which tends to trail off after the initial announcement.) Finally, public companies have cash and stock that they can use to acquire other tech companies and keep the good times rolling.
However, I have no solution to this lack of IPO problem. It’s more than just regulation (although becoming a public company is expensive with accounting/compliance/legal etc.) I think there may be a problem with the investment banking environment. There doesn’t seem to be the level of trading support for companies once they have gone public. But I think the $ are gone from the trading market, so I don’t know how this could ever return. OK, now I’m getting out of my league and will stop this post, because we have gone from pure conjecture to me totally making stuff up out of thin air…