US venture capital spend prompts hope and pessimism
NET RESULTS:WHEN IT comes to venture capital investment in the US, it’s one of those glass-half-full versus glass-half-empty moments again, depending on how you eye the statistics.
The latest report from the National Venture Capital Association (NVCA), in conjunction with Moneytree and PriceWaterhouseCoopers, indicates VC spending was down significantly – 7 per cent – in the second quarter this year, compared to the same quarter in 2011.
And the report reveals that unless there’s a massive increase in deals in the rest of 2012, venture investment this year will be down on the overall figure for 2011.
So far, some $13 billion (€10.6 billion) has gone into deals in 2012. The full year total for 2011 was about $30 billion in the US. On the other hand, in 2010, investment totalled $23 billion, so this year looks likely to be better than 2010.
The feeling on the ground in the Valley seems to be that investment for the rest of the year is unlikely to rise significantly.
The Silicon Valley venture capitalist confidence index, a survey of VCs taken quarterly by the University of San Francisco, shows confidence has slumped. In Q1, confidence was 3.79 on a scale of five; in Q2, it had dropped to 3.47.
Still, that’s well above the low point of Q3 of 2009, when confidence fell to 2.7. The high point – at least since the survey began in Q1 of 2004 – was in Q1 of 2007, a lofty 4.5, after which it was a downhill, post-Lehmann freefall to that 2009 low.
Mark Cannice, the report’s author, noted that VCs attributed their current reluctance to invest to economic concerns in Europe and China, the regulatory and financing environment in the life science sector, and a disappointing Facebook IPO.
Sure enough, the NVCA report said that investment in life sciences, as well as clean technology, had declined.
But if you are a glass-half-full person, the Q2 numbers – $7 billion invested in 898 deals – was an improvement on the first quarter of 2012, which saw $5.8 billion go into 758 deals. And, in news that will cheer company founders, the amount of money going into early-stage deals has risen to $2.1 billion, supporting 410 start-ups. Amazingly, that’s the highest figure since 2001 – way back at the close of the dotcom boom.
The average first-time deal in the second quarter was $3.7 million, down slightly from $3.8 million in the prior quarter. Seed and early-stage companies received the bulk of first-time investments, with 78 per cent of the deals.