Disparities in First Quarter VC Activity, the San Diego Subsidence, and Top 10 Local Deals

Xconomy San Diego — 

“”Figures often beguile me,” Mark Twain wrote more than a century ago, as he worked his way up to the proposition that “There are three kinds of lies: ‘lies, damn lies, and statistics.'” I wonder what the cantankerous Twain would say today about the disparities in data concerning venture capital activity that are issued each quarter.

The first quarter venture capital investment activity that came in yesterday from the New York data services firm CB Insights showed a substantial gain in nationwide funding. Now comes the MoneyTree Report, which shows a modest increase in capital and a decline in the number of deals.

According to the MoneyTree Report, venture capitalists invested $5.9 billion in 736 deals nationwide during the first quarter of 2011. That was a 13.7 percent increase in capital and a 6.4 percent decrease in the deal count, compared to the same quarter in 2010, when nearly $5.2 billion went into 787 deals nationwide. The report is prepared by the National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters.

CB Insights said yesterday that VCs invested $7.5 billion in 738 deals during the first quarter. That was a 27 percent increase in dollars and a 1 percent gain (which isn’t a significant change) in deal count over the first quarter of 2010, when CB Insights counted $5.9 billion and 730 deals.

The numbers vary because the surveying firms rely on different sources, and they use different ways to count and categorize venture deals. For example, CB Insights counted half of the $950 million funding deal that Groupon announced in December in the fourth quarter of 2010 and half in the first quarter of 2011. What one firm counts as a cleantech deal another might count as energy or IT.

A more worrisome trend has been unfolding in the MoneyTree data about venture investment activity in San Diego. CB Insights doesn’t provide regional data in its report, and MoneyTree found that VCs invested just over $100 million in 22 San Diego startups during the first quarter of 2011. That’s a 55 percent drop in capital and a 29 percent decline in deals from the first quarter of 2010, when venture investors put nearly $223 million into 31 companies.

There was also a drop for the San Diego region during the preceding quarter, when VCs put $218 million into 27 companies, according to the MoneyTree data. Over time, the numbers also reflect a gradual decline of deployed venture capital and deals in this area.

So what’s going on?

“It’s a good question,” says Ivor Royston of San Diego-based Forward Ventures. “There’s obviously a contraction going on. There is so much activity now in consumer Internet and social media, and most of that activity takes place in the Bay Area and back East.”

Royston also sees a broader contraction among venture investors in the life sciences, where he specializes. “There’s less capital available, and people are being very careful,” Royston says. “I do think the innovation is still here to be done.”

David Titus, who was recently hired to serve as the first official president of the San Diego Venture Group, says the statistics for a single quarter tend to be misleading because long-term trends are often obscured by the lumpiness of quarterly results. “So much of our dollar totals here can get swung by two or three late-stage biotech deals,” Titus says. Perhaps others will offer their perspectives below.

The top 10 San Diego deals, according to the MoneyTree Report:

Conatus Pharmaceuticals $25.3M

Genomatica, $23.8M

ecoATM, $14.4M

Elcelyx Therapeutics, $6.1M

Mpex Pharmaceuticals, $5.1M

Ophthonix, $4.7M

Verdezyne, $3.1M

Next Therapeutics, $3M

Grid2Home, $2.6M

Axikin Pharmaceuticals, $2.5M

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5 responses to “Disparities in First Quarter VC Activity, the San Diego Subsidence, and Top 10 Local Deals”

  1. David Titus says:

    We are three weeks into the new quarter and already San Diego VC financings
    are equal to 90 percent of Q1 financings!

    Conatus $7.5M
    Sangart $50M
    Tracon $14M
    CoDa Therapeutics $19M

    This speaks to the point I was making to Bruce in the above story of the quarterly variations due to big biotech deals.

  2. Tom Tierney says:

    > are equal to 90 percent of Q1 financings!

    It’ll be interesting to see how Q2 turns out. Here’s Q2 from the last two years for San Diego VC investment:

    2010 Q2 $170.6M in 24 companies.
    2009 Q2 $256.7M in 26 companies.

    The trend line for VC investment has been poor the last few years for San Diego and this is when the economy is supposedly “kind of” recovering.

    It may well be that VC funds winding down and no big follow on funds (both in number and size) are beginning to show in the numbers?

    Angels continue to be active but deals (number and size) are also down.

    The good news: we’re long overdue for a *big* cyclic recovery (optimism = “ON”) – the question is how long will the trough continue?

  3. BrettInLJ says:

    I have some friends in the Bay Area that were going to start their company in San Diego. They abandoned the idea and stayed up north due to lack of funding in SD. I had already moved down for a similar reason. The plans now are to head back up to the Valley as the networking and chances of getting funded as we gain traction are higher. Enough to outweigh the 2.5x cost of living.

    San Diego investors need to start focusing on lower barrier to entry internet/mobile startups rather than just biotech and life sciences. I worry about prospects for an economic recovery in San Diego.. it is the city I love and grew up in and wish it well even as I leave it behind.