Michael Greeley of Flybridge just wrote an interesting post in PEHub about the new VC industry data released by NVCA, Thompson Reuters & PriceWaterhouseCoopers. Well worth a read. Gist of his post is that the VC industry is continuing to consolidate and he thinks we are seeing several things as a result: a focus on near term liquidity (chasing late stage deals), a flight from highly regulated and long time frame industries, and most interesting to me, a claimed end of what he calls the “Great Seed Experiment” – a theme he has noted for some time: “the VC industry is at risk of having created too many “me too” companies, and with less capital to invest across the board, many seed entrepreneurs will be deeply saddened when they come back to market for their Early round…” Few key excerpts from his post are below; original worth a read.
§Biotech took it on the chin – $780MM invested in 99 deals which is down 43% in dollar terms and down 14% in number of deals from last quarter (average size ~$7.9MM)…
Clearly as the VC’s invests fewer dollars in any given quarter, most categories will be down. What is most striking is the continued and strong rotation away from industries that have significant scientific and regulatory risks, and are also characterized by long times to generate investor returns. Notwithstanding popular opinion, VC’s aren’t dummies.
Other observations around stage are also notable.
§Late Stage investing was up 11% this quarter and represented 40% of all deals. Clearly there is a rotation to opportunities nearer to liquidity, which most funds need to show in order to raise new funds. There was $2.3BN invested in 208 Late Stage companies this past quarter which was consistent with the $2.4BN and 234 deals in 1Q11.
§“End of the Great Seed Experiment” which is something I have been saying for the better part of a year – there was only $141MM invested in 53 deals in 1Q12 (admittedly I think that number is under-reported) as compared to $156MM and 90 deals in 4Q11 and strikingly to the $211MM and 86 deals in 1Q11. I have been on this thread for some time; that is, the VC industry is at risk of having created too many “me too” companies, and with less capital to invest across the board, many seed entrepreneurs will be deeply saddened when they come back to market for their Early round…
§Softness in Early rounds – $1.6BN was invested in 290 companies which were materially down from $2.3BN and 382 deals in 4Q11 (and somewhat so from 1Q11 – $1.8BN and 320 deals). VC’s over the last few quarters went very early (how many “seed programs” were started?!?) and now they are going later to either support existing portfolio companies or buying pre-liquidity companies…
§Massachusetts had $628MM invested in 90 companies as compared to $678MM in 97 deals in all of New England. The data for Massachusetts in 4Q11 was $757MM in 92 deals, so some meaningful deterioration quarter-over-quarter, but not as severe when looking at 1Q11 data of $670MM in 86 deals.
§And so how did New York do? In 1Q12 the New York Metro area saw $378MM invested in 75 deals (New York State was $271MM in 62 deals), which is less than both Massachusetts and New England – interesting. In fact New York Metro was less than Texas. The NY Metro region had $576MM in 84 deals in 4Q11, so there was quite a drop heading into 2012 (for 1Q11 the numbers were $586MM and 82 deals). That is very surprising to me…
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If you enjoyed this post, you might enjoy: Thoughts on Crowdfunding, Pattern Matching Can Cause Blindspots, Getting Off The Ground; Early Formation Economics, Why Angels Chase Electrons, Delusional Economics, That Vision Thing, The Power of An Advisory Board, Loch Ness, Unicorns & The First-Mover Advantage, Are Entrepreneurs Wild Risk-Takers?, Top 20 Dos & Don’ts with Angel Groups & Early Stage Financing.
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