True Ventures' announcement of its Series A investment in Syncplicity. The more we looked, the more we found that the headlines were wrong. It was not all doom and gloom, not in our corner of the universe: early-stage Web tech ventures. So we figured that getting (and passing on to you) good reliable data on a timely basis would be a good idea. Searching for that turned out to be harder than we thought, and herein lies a tale.We started tracking VC funding in October 2008, as the financial markets were melting. What caught our eye in those dark and gloomy days was
A Billion Here, a Billion There
For the quarter ending this past June, we compared the findings of three research firms that reported on the money invested in Q2:
- July 21, MoneyTree (PricewaterhouseCoopers, with data from the National Venture Capital Association and Thomson Reuters): $3.7 billion, with 612 deals,
- July 18, VentureSource (DowJones): $5.27 billion, with 595 deals,
- July 14, ChubbyBrain (a New York City-based startup partnering with ReadWriteWeb): $5.329 billion, with 613 deals.
VentureSource and ChubbyBrain seem to agree on the top line number. But MoneyTree's number is what most people report, and that is about $1.5 billion different.
As the old saying goes, "A billion here, a billion there. Sooner or later it adds up."
Disclosure: Our VC Funding Report
ReadWriteWeb has an interest in this. We sell a report for $299 that has details on the 240 deals done this quarter in the Internet, mobile, and SaaS space (not clean tech or bio tech), and this is powered by data from ChubbyBrain. So we are biased. But it also means that we are engaged and have been looking at this fairly deeply.
We also think that accuracy matters, and we are trying to figure whom accuracy matters to. We see three main types of participants in the industry:
- VCs. They need accurate data for their own fund-raising. They have to be able to benchmark their own funds relative to the broader market.
- Entrepreneurs. Data on what funding deals are being made, and why, helps them figure out how much to raise, when, and from which VC.
- The startup "community." This is a catch-all for everyone else, who tend to align to either VCs or entrepreneurs. Journalists, the non-aligned fourth estate, want reliable data to key off interesting stories.
Why does this matter? The startup community matters to the health of the overall economy. As the National Venture Capital Association (NVCA, the trade association of VCs) likes to point out:
"Originally, venture-backed companies have created companies that accounted for 10.4 million jobs and over $2.3 trillion in revenue (based on 2006 data)."
So a headline like "VC Investments Falling Off Cliff in the US" really impacts a lot of people. That is the kind of headline that most journalists/bloggers wrote in April 2009, based on data reported by those trusted sources.
We wrote a really boring headline:
That's a lousy headline for generating page views. It's a story about "the dog that did not bark."
The point is that headlines drive business behavior to wild excesses on both the down-cycle bust and the up-cycle boom.
Just good reliable data would help.
Innovation Is Global, But It Keys Off US Data
At ReadWriteWeb, we love to track innovation from far-flung corners of the world, and we see the globalization of innovation as a critical trend.
So we want to be able to report on financing trends for early-stage Web technology startups across Europe and Asia, in addition to the US. And we expect any research process to be able to scale to that challenge.
But the reality today is that, globally, entrepreneurs and VCs key off US data. If they were to key off bad data, that would matter to everyone.
Why This Matters
Driving with one's eyes in the rear-view mirror is dangerous. We take action based on what authoritative sources tell us is happening today, and we base our assumptions on what that means will happen next and plan accordingly.
In reality, these sources tell us what has happened in the past, and they may not even tell us that accurately.
When we at ReadWriteWeb look at the macro picture, we favor a contrarian view simply because the reality we see today is often not what the headlines trumpet. When the markets were in the late stage of a boom, we were sounding the warning signals.
When the markets were melting, we began to see surprising signs of life in the early-stage Web technology world we live in.
Whether you are an entrepreneur or an investor, knowing what the crowd is thinking -- and what the headlines are trumpeting -- is valuable. Even more valuable are the underlying facts and trends that may be missing from those headlines. In the disconnect between the two often lies a lot of opportunity.
We hope to ignite a debate that leads to greater accuracy and transparency of these numbers.