According to ChubbyBrain, a New York based research company dedicated to democratizing startup and investor information, VCs invested a total $5.329 billion in Q2 2009. This represents a nearly 61% increase over the $3.314 billion of investment ChubbyBrain tracked in Q1 2009. This is partly a story about signs of recovery, which is very encouraging. It is also a story about trusting data and the research methodologies used to collect data such as this.
The Data Is What Matters
When the Q1 numbers came out, ReadWriteWeb did not share the general doom and gloom in the headlines. We reported the “dog did not bark” story when we said that VC Investment in Internet Deals Did Not Fall Off a Cliff. We did that because the headlines did not match what we heard from entrepreneurs and investors and what we saw from our own limited online research. We had been tracking a small segment of the market — early-stage Web technology investments — since the market meltdown in October 2008. In April, we started to work with ChubbyBrain so that we could have more confidence in the quality of the research, and we started to see healthy signs in April and May. It was clear that Q2 was going to look good. But it was critical that we were able to trust the numbers. The startup community makes decisions based on these numbers. The quality of the data matters.
What Is Excluded
The numbers would look a lot bigger if ChubbyBrain had included:
- Global Deals. This is only US deals
- Debt. This is only equity
- Private equity (which usually means leverage buyout). This is only VC deals.
- Angel investment (unless they invested with a VC Fund). This is only VC deals.
- PIPE deals (Private Equity Investment in Public Equity). This is only private companies.
We would have liked to include more angel and global deals. They matter to early-stage innovation, and that is what matters to entrepreneurs. But that would not have dramatically changed the numbers. But if you started adding debt and public companies, the numbers would become meaningless: these deals tend to be way bigger than VC deals. One public or leverage buyout deal would totally change the numbers.
Here are two other things we took care to report on accurately:
- For follow-on investments, we only recorded the portion of the investment made in the quarter, not the total of the announced round.
- The amount that actually closed, not the intended size of the round.
Most importantly, ChubbyBrain only includes deals that were verifiable via either (A) regulatory filings or (B) confirmation from firm or investor or (C) press release.
This process might miss some deals. So the total number maybe bigger than $5.3 billion. But we are confident that what ChubbyBrain has found is accurate.
Next week, we will be doing a deep dive into the segment that matters to the ReadWriteWeb community: Internet and mobile deals.
The quick takeaway from this early look is that money is available for early-stage startups. Despite conventional wisdom that venture firms would invest only to fortify existing portfolio companies, the quarter saw healthy levels of early-stage investment in seed and Series A rounds, accounting for 35% of the number of deals. This confirms the anecdotal evidence we get from talking to investors and entrepreneurs.
We do not see this as a sign that the general economy is recovering. It is too early to call that. But we do see this is very hopeful news for entrepreneurs. And what is good for entrepreneurs tends to be good for the general economy at some point in the not-too-distant future.