VCs Making More Deals, For Fewer Dollars

More venture capital deals, particularly early-stage deals, but fewer dollars. This was the bottom line highlighted in today’s MoneyTree report on venture capital covering the second quarter of 2007.

The report showed a nationwide 15.6 percent rise in deals—from 845 to 977—in Q2 compared to Q1. At the same time, investment fell from $7.4 billion in the first-quarter to $7.1 billion last quarter, a 4.3 percent dip. That trend was mirrored in New England, where deal-making skyrocketed nearly 40 percent (141 second-quarter deals, compared to just 101 in Q1) but the dollars sank a bit more than 11 percent, from $972.6 million to $862.4 million. There’s a nice write-up about the data in today’s Boston Globe by Rob Weisman.

So why more deals but less money? Well, one answer is a big uptick in early-stage investing, where companies typically seek less money than in later rounds. Weisman’s article, in part by quoting Tracy Lefteroff, global managing partner of PricewaterhouseCoopers’s venture capital practice, makes a good case that venture funds in recent years have been reluctant to invest in early stage firms while their portfolios were still saddled with dotcom-era investments. Now, the theory goes, the weight of those dotcom firms has been lifted through merger, sale, or collapse, leaving VCs ready, willing, and able to take on new start-up investments.

The MoneyTree report is sponsored by PricewaterhouseCoopers, Thomson Financial, and the National Venture Capital Association. It competes with a similar analysis put out by Dow Jones VentureOne and Ernst & Young, who released their Quarterly Venture Capital Report a few weeks ago.

That report also noted a rise in venture deals in Q2. However, rather than a decrease in outlays, it showed an increase of 5.5 percent in venture financing. There wasn’t a dramatic difference in dollar figures: the VentureOne data showed $7.4 billion invested by venture firms in Q2 vs. the $7.1 figure from MoneyTree. Obviously, though, the two groups use somewhat different criteria for their analyses. Representatives of both firms put forth several theories about how their methodologies differed. But both shot down the other’s ideas. We’ll keep working to understand the differences—maybe by next quarter.

Bob is Xconomy's founder and chairman. You can email him at [email protected] Follow @bbuderi

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