Earlier this month, Dow Jones released data about the U.S. venture capital landscape
in the first half of 2011. While the money raised by venture funds rose 20% over the first half 2010, the number of funds that this money went to actually decreased. Scott Austin, editor of Dow Jones VentureWire, attributed this decrease in the number of funds to investor reluctance: investors are increasingly only interested in placing their money funds that have demonstrated strong performance.
At the same time, CB Insights, a New York-based data services firm, reported that Q2 2011 registered $7.6 billion of venture capital funding invested in 768 deals—a nine-quarter high. This figure speaks to the continued focus on the impact growth companies have on the American economy. Funding allows small businesses to grow, not only to further develop innovative products and services, but also to create much-needed jobs.
Seed Stage Venture Capital Up Overall, Early-Stage Down
Seed stage venture capital deals climbed to a five-quarter high of 12%. Series A financings, which are later that seed stage financings, dipped to a five-quarter low. Dow Jones reported a decrease in funds raised by large early-stage venture firms—a 48% decrease, a figure that seemingly highlights the industry’s continued eagerness to focus on booming, late-stage companies.
However, just because the 28 early-stage funds Dow covers in its report show a decrease does not mean that the money or interest isn’t still there—it just means that early-stage funds might consider investments a little more carefully. Sure, early ventures are higher risk than mid- or late-stage ventures, but they’ve historically had higher returns. Plus, start-ups are generally more agile and creative when it comes to cash. They can more quickly adapt to changes in the marketplace than larger companies, and they’re more familiar with doing more with less money.
Perhaps these figures will make some start-ups take pause to see if they’re focusing on what investors are interested in—what Mark Sutter has dubbed the four Ms: momentum, management, market size, and money.