MoneyTree Survey of VC Activity Sees Pace of Investments Strengthening

Xconomy National — 

Let optimism reign. A third survey of recent VC activity shows that venture investments increased 17 percent during the third quarter, compared with the previous quarter. While the actual numbers vary, the findings of the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters, reinforces the more optimistic views expressed last week by ChubbyBrain, the New York-based information services firm.

Results of the MoneyTree report for the three months that ended Sept. 30, along with a quick recap of two rival surveys released since last week, show how disparate the numbers reported in such studies can be:

—MoneyTree says venture firms invested $4.8 billion in 637 deals—a 17 percent increase in capital invested but a 3 percent decline in deals compared to the second quarter of 2009, when MoneyTree counted $4.1 billion invested in 657 deals. In its statement on the NVCA website, MoneyTree calls the quarter-to-quarter increase in VC investing “very encouraging.” (It’s down 33 percent, though, compared to the $7.2 billion in 994 deals that MoneyTree counted in the third quarter of 2008.)

—Dow Jones VentureSource reports that VCs invested $5.1 billion in 616 deals—a 6 percent drop from the $5.4 billion invested in 595 deals during the preceding quarter. In its statement, Dow Jones says its results indicate that the slow recovery for venture capital has faltered. (It’s also down 38 percent from the $8.2 billion in 663 deals that DowJones counted in the third quarter of 2008.)

ChubbyBrain says VCs invested $6.056 billion in 680 deals during the quarter—a 14 percent increase over the $5.329 billion invested and an 11 percent increase in deals from the second quarter (it didn’t specify the Q2 deals number but I estimate their count would have been roughly 612). Like MoneyTree, ChubbyBrain finds the third quarter results encouraging, saying they are a sign that technology-based startups are gaining increased momentum. (ChubbyBrain, which lacks a prior-year database because it launched its website earlier this year, estimates that VC investments for Q3 are down almost 16 percent from the $7.2 billion invested in the year-ago quarter.

I usually don’t worry about differences between various surveys, and try to focus on the trends that emerge within the data from each survey. That’s because different organizations use different methods to count venture capital investments, and different ways of organizing their data. For example, should VC investments in wireless health get counted as life sciences or telecommunications? In general, the broader trends reported by each survey also tend to align in the same direction, so it is unusual to see such a contrast between the data and conclusions from Dow Jones VentureSource and the other two surveys. ChubbyBrain, which is fighting to establish itself as an information services provider for investors, startups, and aspiring entrepreneurs, has an interesting and provocative post on its website about the differences they see in survey methodologies.