Venture Surveys Show Nationwide Increase, More or Less, in Second-Quarter Investments

Xconomy National — 

How would you prefer your venture capital survey data this morning? Depending on the source, we can serve it up lukewarm, hot, or scalding. All three measures show that venture funding rose during the second quarter; it’s just a matter of degree:

CB Insights, a startup financial services firm based in New York, reports that $5.9 billion in venture capital was invested in 612 startups nationwide during the second quarter, which ended June 30. That was flat compared with the $5.9 billion in venture funding that CB Insights counted during the previous quarter, and 11 percent higher than the $5.3 billion invested during the second quarter of 2009. In its commentary, CB Insights says the overall trend—along with a “tepid” climate for VC fund-raising—“gives credence to the idea that venture funding may be settling into a ‘new normal.’ ” The firm suggests that annual venture investing has been reset at a range between $20 billion to $25 billion a year.

Dow Jones VentureSource, which reported its data over the weekend, found that venture investors put $7.7 billion into 744 deals during the same period—a searing 65 percent increase over the $4.7 billion in venture funding that Dow Jones counted in the previous quarter, and a 26 percent gain over the $6.1 billion recorded for the same quarter last year. In contrast to CB Insights, Dow Jones VentureSource asserts that deal activity and capital invested in venture-backed companies is almost back to the pre-recession levels of 2008.

The MoneyTree Report landed somewhere in the middle, saying $6.5 billion was invested in 906 deals—a deal count significantly higher than the other two—and a 33 percent increase over the $4.9 billion invested in 740 deals during the previous quarter. The $6.5 billion also was more than 50 percent higher than the $4.3 billion that VCs put into 705 deals during the second quarter of 2009. “Venture capitalists are feeling more positive about the economic outlook for investment, based upon the jump we saw in VC funding this quarter,” says Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers, which prepares the quarterly MoneyTree survey with the National Venture Capital Association, based on data from Thomson Reuters.

As I’ve noted before, each survey uses a different methodology and taps into different networks that collect information about each venture deal—and there may be room for varying interpretations, for example, in how tranched venture investments get counted. Differences also arise in the way industry sectors are categorized. For example, renewable energy is included as part of the cleantech sector in the MoneyTree Report, but Dow Jones VentureSource categorizes renewable energy as part of its energy and utilities sector.

Some other observations from the data:

—CB Insights notes that three states, California, Massachusetts, and New York accounted for 65 percent of the deals and 70 percent of the venture capital that was invested during the three months that ended June 30. The Golden State alone accounted for 43 percent of the deals and 53 percent of the funding, with most of those deals and investments happening in and around San Francisco. Of the $5.9 billion and 612 deals that CB Insights counted during the quarter, California accounted for $3.06 billion and 264 deals.

—The biggest discrepancy among the reports involves investments and deals in the cleantech sector. The MoneyTree Report found that venture firms invested $1.47 billion in 71 cleantech deals nationwide during the second quarter. That’s double the $708.8 million that was invested in 70 cleantech deals during the first quarter of 2010—and breaks the quarterly record for cleantech funding, according to MoneyTree. But CB Insight reports that cleantech funding dropped 20 percent from the first quarter and the deal count sank by 35 percent. CB Insight found $1.05 billion was invested in 55 cleantech deals during the quarter, which isn’t that far off from MoneyTree’s numbers. But in the previous quarter CB Insight said more than $1.3 billion was invested in 85 cleantech deals.

—The MoneyTree Report and Dow Jones VentureSource agreed on one thing—the single biggest venture deal of the quarter was the $350 million that venture firms invested in Better Place, a Palo Alto, CA-based startup developing batteries and charging stations for electric vehicles. Dow Jones said the investors include HSBC Bank, Maniv BioVentures, Morgan Stanley, and VantagePoint Venture Partners.

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