Startable – Healy Jones’ & Prasad Thammineni’s Blog

CB Insights’ data is showing that Massachusetts early stage fund raising, as a $ volume, really dropped in the past quarter.

Massachusetts Funding Plummets – The state sees a five quarter low dropping below half a billion dollars of funding while dealflow stays consistent. Healthcare remains dominant but loses some share of dollars and deals to internet and software. Portion of state’s deals going to seed deals significantly less than New York and California.

While the number of deals in the state remains the same, the dollar volume is way, way off. A chart from CB Insights’ report:

Basically, it looks like the size of dollars invested by deal has dropped in half since Q1 (~$10mm per deal vs ~$5mm per deal.)

It also seems like NYC has surpassed Boston for early stage internet deals. This is actually a pretty big thing. I’m not against NYC doing well, and also postulate that there is some positive spill over to Boston for a good funding environment in NYC – in fact, OfficeDrop‘s funding source in NYC based.

But what is prompting the drop in Boston, while both CA and NYC have gone up? What is going on?

Some potential ideas on the funding situation in Massachusetts

Healthcare seems to have been hit hard this quarter. Healthcare has been a very important part of the Boston venture scene, and also tends to have higher average deal size. Over the past three quarters, for example, the average healthcare deal size has been about $10mm per deal, vs about $6mm for internet investments. See page 41 of the report to see some charts on this in Mass.

Lack of big deals. Other regions have some serious Series C deals – that have lots of capital invested, thus dramatically popping the average + total deal size. Did Mass have any really big later stage deals?

Lack of clean tech. “energy and utilities” are 7% of deal volume in California – but only 3% in Mass. These tend to be bigger deals than internet. Did Massachusetts miss the cleantech boom?

Are Mass companies too quiet? For example, when my company raised funding last year we didn’t really let any of the data providers know, do a press release, or even a blog post. I know of several other MA companies that have raised $500k+ that haven’t announced it. Maybe fund raising isn’t enough of a status thing in MA?

Is seed funding too popular in Mass? This chart is from page 42.

Actually, now that I compare the above chart to California, I think the answer is no. CA not only has more seed deals, but also has more Series D+ deals. Maybe the real idea is that MA companies get sold before needing huge capital raises? IDK.

This is a very good report. Download it.

Boston area startup, Care.com, has just announced a $20 million venture capital round from new investor NEA, in addition to existing investors Matrix and Trinity.

Although I’m doubtful that she remembers me, I am lucky enough to have interacted with Care’s CEO/co-founder, Sheila Lirio Marcelo. She is a real star!

Good luck to the entire team at Care – hope you keep growing (and stay in the Boston area)!

I’ll be speaking at a very cool event next week in Cambridge on the 5th in the evening. The event is called “Customer Development: The Second Decade — with Steve Blank’s co-author Bob Dorf.” Come out and hear some pretty interesting folks talk about startup marketing. The main speaker will be Bob Dorf, and the event is moderated by Simeon Simeonov. Other speakers include:

• David Cancel, serial entrepreneur and founder of Compete, Lookery, Ghostery and Performable.
• Andy Moss, founder and CEO of ESMZone.
• Andy Greenawalt, founder and CEO of Perimeter eSecurity and Continuity.net.
• Healy Jones, founder of Startable and VP Marketing at OfficeDrop.
• Rob May, founder and CEO of Backupify.

The event is free (sponsored by General Catalyst, a local venture capital firm.) To register for the customer development event click here. The event will start at 6 PM and will be hosted at Microsoft’s NERD Center, One Memorial Drive in Cambridge, MA. Everyone should come!!

The conference is organized by General Catalyst Partners and FastIgnite. Bob Dorf will provide an exclusive peek “under the covers” at some of the many new rules and advancements that Steve Blank, Bob and the ecosystem of thousands of entrepreneur, marketer and investor practitioners have developed over the past several years. The event will feature a keynote by Bob, guest appearances by entrepreneurs and executives who have successfully applied customer development in their businesses and a discussion led by General Catalyst Executive in Residence and FastIgnite CEO Simeon Simeonov.

Last night’s Web Innovator’s meeting was great, maybe the best one so far this year. I really enjoyed the “self funded success stories” talk. Three successful startup founders who bootstrapped their businesses spoke about the trial s, tribulations and lessons-learned of self funding. It was really inspiring to see local companies that were doing well without the need for any outside funding!

Laura Fitton of OneForty moderated the panel, which had:

• Steve Conine, Co-Founder of CSN Stores
• David Hauser, Co-Founder of Grasshopper
• Todd Garland, Founder of BuySellAds

Bootstrapped Startups Lessons

Some of the key takeaways on how to bootstrap your startup, as I understood them from these founders:

1. Even if you were not trained as a developer it is very helpful to be able to take part in your products development. Bootstrapping is a lot easier if you don’t have to pay anyone to develop your service/site/product.
2. Start pushing right away for a product that you can sell ASAP. When you have funding you have the luxury of taking time to get to market; when you are self funded you need to get selling fast.
3. Be sales and support in the early days. If you do not have lots of capital in the bank you need to be very careful that your service is resonating with customers. The only way to do this on a budget is to do it yourself. Listen carefully to your customers and change your product as fast as you can to meet their needs.
4. You don’t need a 50 page business plan. Two of the three founders used a spreadsheet to define their company’s early stage goals and track their progress; one had a two page business plan and a spreadsheet. You don’t have time to do a beautiful 50 page bplan – just figure out what you think your metrics and costs will be and start executing (and monitoring your progress against your plans.)

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.

VC $ Invested First Half of the Years

Deal Volume:

First Half VC Deal Volume

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??

I attended the AlwaysOn Venture Summit East last month, and was just sent a survey of venture capitalists in the Northeast that came out of that conference. Happily, our local VC friends are pretty optimistic about the rest of the year. You can get the survey here.

In particular, they think that the number of new financings will increase pretty significantly in the second half of 2010 and into 2011:

The survey also suggests that the dollar amount invested will grow in line with the number of new deals. (I’m not going to bother to paste in that chart since it looks pretty similar to the one above.)

VCs are also excited about early-stage investing in the coming years. I guess that’s not too surprising, since that is where they traditionally invest money. The large percentage interested in seed financing is pretty interesting, but without a feel for what this chart has looked like over the past few years I can’t really draw any conclusions on how the environment is changing. But still, an interesting chart.

More VCs seem weighted toward slightly higher valuations than lower – although most, 43%, claim to think that valuations will be flat in 2010 and 2011. Hmm… I tend to think valuations are going up! Let’s start that rumor.

Finally, the charts on exits. When I first looked at it I felt that it seemed pretty optimistic; over 40% of VCs think that at least 20% of their portfolio is ready for exit. But it’s hard to argue that this really means anything. From my time at VCs, 20% of portfolio companies being at a stage when they could be sold is pretty standard. The real question isn’t
“are companies ready for exit.” The real question is, “are the capital markets open.” Open, as in, are there IPOs/M&A opportunities for tech companies.

72 venture capital funds raised $7.5 billion in the first half of 2010. That is an increase of 13% (on a dollar basis) from the previous year. But it’s way less than the $14.2 billion raised in 1h 2008. Dow Jones has more info.

I attended Angel Boot Camp yesterday (June 1, 2010) at the Microsoft NERD center. It was a great event with something close to 300 angel investors gathering to discuss how to activate the angel community in Boston. Jon Pierce of the Awesome Foundation organized everything – nicely done Jon! Here are a couple articles/posts on the Boot Camp from the community:

Wade Roush of Xconomy published a great summary of the speakers main topics.

Also, Don Dodge put the key points from his talk up on his blog “The Next Big Thing.”

two more posts inspired by Angel Boot Camp:

Will Herman on Angel investing – why he does it and what he gets out of it, plus some ground rules for success.

Brad Feld on suggestions for angel investors.

And another Angel Boot Camp post:

Gabriel Weinberg was reminded of how much he likes backing hackers and needs to make more investments.

BostInnovation on the first sessions of Angel Boot Camp.