What do quarterly VC numbers tell us?

The venture capital investment numbers are out for the first quarter of 2012 (courtesy of NVCA & PwC). Most of the reports I have seen compare the quarter to either first or fourth quarter of 2011. Either way, VC investment is down (in dollars: 13% from Q1 ’11 and 19% from Q4 ’12). Michael Greeley, general partner at Flybridge Capital Partners, asked whether the VC dollars raised and invested are starting to converge. There is a nice graph there showing that VC dollars invested have exceeded dollars raised for the last couple of years. While there were a couple of years in the early 2000s with the same trend, trends like that are unsustainable long term.

I wondered whether quarterly performance is a good predictor of annual performance. In other words, is venture capital (VC) investment a slow and steady process throughout the year or are there historically breakout quarters? The following graphs are based on the NVCA/PwC data. I looked at VC as a whole as well as a breakout for biotech investments. The first graph in each category is all historical data. The next two graphs (side by side) are 2002 to Q1 2012 vs. 2007 to Q1 2012. For the fiver year overview, I included the annual totals on the graph for reference. At first glance, the funds raised vs. invested issue suggests we’ll see a decrease in VC invested in 2012 but the magnitude of the change seems unlikely to be predicted by the first quarter numbers.

After looking at the national data, I went back to the Wisconsin data since business here have issues with access to VC. When the first quarter numbers were released, two VC investments (Alice.com and Murfie.com) for $5 million were noted. Using the same approach as above, I compiled the Wisconsin data. I’ve suggested previously there are perils in looking at annual VC data when the numbers are small and I think the WI quarterly data emphasizes that point. Since the start of 2002, VC investment in Wisconsin in any given quarter is almost equally likely to be <$5M as over $20M (13 quarters <$5M, 11 quarters >$20M).

I actually saw Michael Greeley’s blog post after I compiled the data above and I wanted to also adress one additional point he made:

Lastly, and this one always amuses me, 11 states in the country had zero – nada – VC deals, while 19 had less than 3 deals in 1Q12. Are 60% of the states not even in the innovation economy?!?

Shortly after, I saw that Bijan Salehizadeh, managing partner at NaviMed Capital, tweeted:

Via @greels1 – 11 states had zero VC deals in Q1. 19 had less than 3! 60% of states not in innovation economy.

While the comment may be true for some states, I don’t believe Wisconsin has been left out of the innovation economy. Rather, this perception highlights that a better job needs to be done to tell the stories of how innovation gets done in an environment where venture capital is not – and has never been – a viable option for most companies.