Venture Capital Investments Up 19% in Q2

Glen Hellman Jul 22, 2011 Tweet

Venture capital investment for Q2 2011 reached $7.5 billion spread over 966 deals, according to the MoneyTree™ Report from PricewaterhouseCoopers, LLP (PwC) and the National Venture Capital Association (NVCA); the data was provided by Thomson Reuters. This is a 19% increase over the $6.3 billion and 814 deals closed in Q1.

While the NVCA seems to be excited by the 19% increase over the prior quarter, stepping back from the trees and viewing the entire forest is instructive. Sure that’s an impressive increase over Q1, but it is only a slight $350K improvement over Q2 2010… a disappointing year.

I’d love to be a cheerleader of growth, and yet the fundamentals do not support much optimism.  Viewing the following chart would make a technical analyst use terms like double-dip and dead-cat-bounce.

For the glass half-full crowd, you may take solace in this un-scientific analysis of possible brighter-side metrics.

1. Advances in cloud computers, crowd sourcing, and open source software have lowered the cost of starting a company.  Conventional wisdom was that an enterprise software company required $12 million in funding 15 years ago.  Today that number is probably more like $2 million. So maybe that’s the explanation for the lower dollar figure.  Just don’t look at the low deal number or the average funding dollars per deal.
2. My gut says that many more angel deals are getting done today than 15 years ago.  This may be because startups require less capital, and angels have the capacity to fund more companies to an exit without those companies requiring a Series A VC round.
3. Companies are beginning to have impressive exits, including this week’s Zillow at $1.6 billion.  Other top IPOs this year include LinkedIn, ZipCar, Pandora and Spirit Airlines. Deals on tap for later this year include Zynga and Groupon.  With exits come liquidity and optimism leading to the kind of exuberance that created the run-up to a bubble.