UNH just published a piece entitled “Where Have All the Seed Investors Gone?” that purports that seed investing has dramatically decreased in the first half of 2010.
I don’t believe it.
This study contradicts my non-scientific view into the seed funding scene (for example, I ate dinner with one of the most active seed investors in Boston who said he had done way more new deals this year vs. last, despite having told his wife he was going to back off this year!) It also seems to go against the data recently released by CB Insights (which I blogged about because it showed that VC investing was going down in Massachusetts.)
I emailed Anand Sanwal of CB Insights to ask if he had an opinion on seed funding trends this year. His response:
You’re absolutely 100% right. These findings are totally inconsistent with our data. In fact, we’re seeing seed rounds in sectors that traditionally haven’t been areas for seed investment (green, healthcare). So overall, seed investments are increasing. Within tech (esp internet/mobile) which is where the seed phenomena has sprouted (apologies for the pun), the momentum is continuing and may even be accelerating.
The report seems to talk a lot about formal angel groups having a higher percentage of “latent,” i.e. non-active members of the group. I wonder if the UNH report has too strong of an emphasis on angel groups? I believe that they are playing a less important role in seed investing today. Instead, it seems that angel investing is now being driven by things like VentureHacks AngelList, which is an informal… group is too strong of a word, more like collection, of angel investors.
So, I believe that angel investing is alive and strong in the US right now.
The UNH study does have some interesting stats; the one I find most interesting is around the analysis on “Yield Rates:”
The yield (acceptance) rate is defined as the percentage of investment opportunities that are brought to the attention of investors that result in an investment. In Q1,2 2010 the yield rate was 12%, continuing a stabilization in yield rates that began in 2008 (10%) and continued in 2009 (14.5%).
While that seems a little high, in my opinion, I think it does show how difficult it is to raise capital. Raising venture capital or seed investments is hard…
November 30th, -0001 at 12:00 am
In fact, UNH's data have resulted in more emphasis on individual angels, and awareness of how small angel groups actually are, as a share of overall angel investing. I think there's a better explanation for the discrepancy between the data and the anecdotal evidence you've seen: an angel investor I talked to yesterday suggested the national trend may not be reflecting what's happening in major markets like Boston, NY & Silicon Valley.
CB Insights is doing a great job, but it's worth noting that they only began collecting data recently. The large increase they show in seed deals may be due to a reporting problem in their first few operating quarters. More established organizations, like UNH, VentureSource & NVCA, have longer track records to draw from for comparison.
November 30th, -0001 at 12:00 am
Galen, thank you for the thoughtful comment. The NVCA spreadsheets are usually very interesting to me, and may have some other information in them. I haven't looked/seen their data in a while (although I usually jump on it, but just haven't been focused on it) Have you analyzed the trends recently?
I think your most interesting point is that I may have the technology area helmet on and not have a clue about what is happening in other markets. Although, I'd imagine that such a high % of investments are done in the major tech investing locations that they pretty much drive the data? (Wow, that is a poorly written sentence, sorry.) Any thoughts?
October 31st, 2010 at 9:52 am
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