Venture Deals Thrive in Colorado – Really?

About 20 days after the end of each quarter, Ernst & Young/VentureOne releases a survey on venture capital funding.  At about the same time, PWC releases their similar survey (MoneyTree).  A rash of articles are written over the weekend and usually hit first thing Monday in the business section of newspapers around the country (and – shockingly – in blogs) covering funding nationally, by city, and by market segment.

On Friday, I got a call from Ross Wehner, a Denver Post staff writer who I like.  He was calling to get my thoughts on the “numbers for the quarter.”  After ascertaining which numbers Ross was talking about (it was a beautiful Friday afternoon in Homer, Alaska – I was not thinking about the E&Y / VentureOne survey), the conversation went something like:

Brad: “Ross – who gives a fuck?”
Ross: “C’mon Brad, you know I can’t print that.  What do you think?”
Brad: “The numbers are irrelevant – plus they are probably wrong and misleading.”
Ross: “Well – there were 24 deals in the first half of the year up from 19 in 2004 and the amount invested was $291m up from $192m.”
Brad: “Yeah, but wasn’t Webroot in there?”
Ross: “Yeah …”
Brad: “So – take it out because – while it’s a venture deal, it’s an anomaly and skews the numbers – so 23 deals and $183m.  That seems like a statistically unimpressive difference.”

We had a good chuckle (Ross is smart – he gets it) but he still had an article to write.  Seriously, does anyone really care about this stuff?  Why are E&Y and PWC spending time on this crap instead of doing good audits and getting S-3’s effective for public companies?

  • Dave Jilk

    Although I don’t know who else might be interested in the numbers, I do know that economic development people and politicians are interested in them. States/regions are always looking to improve their business formation climate and venture capital is of course a relevant factor there. Of course, there is too much emphasis placed on VC money in that arena as well, treating it as a panacea, much like entrepreneurs view a VC funding as an unambiguously good thing. VC funded startups, especially today, have a tendency to be built and then get bought, and the acquirers only sometimes keep the operation where it is. So although it’s good for economic development, it doesn’t necessarily have the long-term leverage on the local economy that local or non-VC-funded businesses do (put another way, if they’re just moving out after they’re sold, you need a certain level of VC investment every year just to tread water).

    On your analysis of excluding Webroot, to really compare this correctly one should look back at the year ago numbers and see if there are any anomalous results there as well. I’ve noticed that many quarters there’s an oddball large deal.

  • These may not be the numbers that are really needed, but they’re the only ones we have to work with. The question to be answered is whether we’re creating VC-funded jobs at a sufficient pace to try to put a lot of the unemployed and underemployed (like me) back to work. Old Economy companies and Old Technology companies (like HP) are still shedding jobs, so the pace of formation of new ventures (and associated *domestic* jobs) is rather important.

    Granted, raw numbers don’t guarantee quality of jobs and sustainability for the longer-term [remember the dot-com and telecom VC boom?], but we’ve got to start somewhere.

    That said, I don’t need to read what the media writes or what you have to say since I get (some of) the raw data delivered to my inbox for my own analysis anyway.

    Personally, I do want to see the data (minus editorial commentary). If for no other reason that to get a feel for whether VC-funded ventures will ever again return to sufficient health so that I can once again be fully employed. What the latest data tells me is that we still have quite a way to go. High-end job formation is really the pits, compared to the current over-supply of technology workers, at least for now.

    BTW, I don’t think the funding data is inflation adjusted, so it is a little misleading when comparing to say 1995 or 1998.

    I do agree that the survey guys should probably throw out “outliers”.

    — Jack Krupansky

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