VC Cash Is April Showers on Web Startup Flowers

Written by Bernard Lunn / May 12, 2009 9:29 AM / 12 Comments

This post is part of our ReadWriteStart channel, which is a resource and guide for first-time entrepreneurs and startups. The channel is sponsored by Microsoft BizSpark. To sign up for BizSpark, click here.

Do you remember the headlines about VC investment "falling off cliff" after some data was reported by NVCA in early April? We took a contrarian view, saying the trend was down, but challenging the doom and gloom that was jumping from the headlines. This was based on our own online research and some anecdotal data from interviews. Fred Wilson at Union Square Ventures also dug a bit deeper. The more we looked into this, the more we saw that the underlying data was not as authoritative as one might imagine. Many people popped up in the comments offering additional data. One was a New York City-based startup research firm (founded as recently as February 2009) called ChubbyBrain (great name!), which tracks this kind of data for a living. So this month, we relied on ChubbyBrain to help us dig deeper and get you the facts.

Healthy Month-to-Month Trend

Month-to-month growth and growth percentage in parentheses:

January: $30.3 million
February: $45.5 million ($15.2 million, 33%)
March: $55.7 million ($10.2 million, 18%)
April: $73.7 million ($18.0 million, 24%)

If these were the revenues of Web Tech Innovation Inc., the CEO would be pretty happy.

Cautionary note: the research methods vary from Q1 (our own) to April (ChubbyBrain's). Because ChubbyBrain has a more comprehensive research method, it is almost certainly finding more deals than we did.

In Q1, our own research came up with numbers that were in the same ballpark as the MoneyTree (TM) Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Because we saw that report as the benchmark, we thought our own research was okay. The readers who pointed out how much we missed forced us to challenge that assumption.

(In April we excluded international deals, so this is comparable to the data reported by NVCA, which is US only.)

California Under 50% of Total

California is the biggest state in both deals and dollars. No surprise there. But California is no longer the only place to go. In fact, in April, California accounted for less than 50% overall (41% in deals and 49% in dollars).

What's Happening in Georgia?

But the big surprise is Georgia, with three reported deals, and good-sized deals at that:

Eucalyptus Systems ($5.5 million)
Psydex ($3.5 million)
Reflex Systems ($8.5 million)

The other surprise was the three deals from Washington State, but all quite small: Foodista, LookStat, and TalentSpring.

Which Ventures Received Money?

This list includes only comapnies that (a) are US-based, (b) are in Web technology, (c) closed Series A deals, and (d) reported the amount. If we missed any, please tell us in the comments.

Which VCs Wired Money?

About Our Research Partner, ChubbyBrain

Launched in February 2009, ChubbyBrain is a New York City-based information services provider that democratizes startup and investor information.

We found them via the comments in our last post on this subject. After a few conversations with Anand Sanwal, the founder, it was clear that ChubbyBrain was serious about shining a light on an area that needed more transparency. So, it made sense to partner with them to get the data that we needed to understand the trend lines.

It feels like we are still seeing only the tip of the iceberg. We want a lot more global data and more angel data. But we are confident that ChubbyBrain is as committed as we are to shining a light on the flow of risk money into Web innovation. It is such an important subject.

From the Department of Old Journalistic Metaphors

With any luck, April showers will bring forth May flowers... those flowers being the rewards that these investors will pluck in five years' time.

But in this game, we need it to rain continuously. So, we look forward to seeing what the May investment numbers tell us. Stay tuned.

Microsoft BizSpark is a startup program that gives you three-year access to the latest Microsoft development tools, as well as connecting you to a nationwide network of investors and incubators. Click here to apply.

Comments

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You missed Opscode.

Posted by: Missed one | May 12, 2009 11:05 AM

Eucalyptus is in Santa barbara, not sure where you got Georgia.

Posted by: Eucalyptus is CA co | May 12, 2009 11:08 AM

All - Thank you for the comments and for keeping us honest.

* Eucalyptus - Absolutely correct. Apologies.

* Opscode - Yes indeed. They did raise a Series A round from DFJ ($2.5M). In retrospect, and as it is a cloud infrastructure startup, we probably should have included it in the April feed that we sent over to RWW.

Thanks again,
The Chubby Team

Posted by: ChubbyBrain | May 12, 2009 11:48 AM

Oh well, there goes my story about Georgia is the next big undiscovered innovation center :-) I mean it is, still undiscovered.

Posted by: Bernard Lunn | May 12, 2009 12:02 PM

Can you provide also year-over-year numbers?

Posted by: john | May 12, 2009 6:45 PM

Is Georgia really that big of a surprise? Check out this article on Atlanta's "infrastructure of education, funding and world-class research, and... groundswell of entrepreneurial spirit." http://www.btobmagazine.com/Articles/2009/June_2009/Tech_Spec.html

And - Go Jackets!

Posted by: Courtenay Bird | May 12, 2009 10:45 PM

I did not go through all start ups. Yet IMshopping sounds like a big loser.
1st. People like to search
2nd. People like to have a reason to contact their friends.
3rd. Even if I am wrong, and the company is a success, Google will just clone it.... cut and past.

Posted by: say-web.com | May 13, 2009 4:19 AM

Foodista.

I must be missing something here.

A fancy forum at the best. They question is how much money can be made out of such enterprise? What is there to need investment money?

Any kid in their teens can put a blog/forum like this together in less then a week, not to mention with a video camera.

Another issue there is the lack of video....want a recipe, watch on you tube or read the encyclopedia on Foodista.

Posted by: say-web.com | May 13, 2009 4:26 AM

Say-Web (# 7 and 8). Building a site is easy, so any site you look at will seem that way. Investors fundamentally bet on traction. One assumes those sites have traction in order to get investment (maybe not?).

Posted by: Bernard Lunn | May 13, 2009 7:22 AM

Ted Thornton, San Jose, CA. In a recent trip back to my home country, Scotland, I attended an Expo (www.inf.ed.ac.uk ) for High-Tec Start-Up companies to present to VCs and Angel Investors. I was please to see that in the current economic climate this was still a buoyant market with a number of the Scotland based VC’s and Angel investors being ‘cash rich’ looking to make investments today. I was also heartened to hear of the work being done by Scottish Enterprise (www.scottish-enterprise.com), ITI Techmedia (www.ititechmedia.com ) and other government organizations to attract new businesses into Scotland. In my opinion Scotland continues to have a great deal to offer American companies not only as a location of highly talented engineers, a low cost base, attractive grants and efficient links into doing business across Europe, but for those American Start-Ups whose founders and VCs are frustrated with the increased costs associated with post-Enron regulatory standards of American securities, Scotland is ideally placed to prepare for ones IPO on to the London Stock Exchange's Alternative Investment Market.

Posted by: Ted Thornton | May 15, 2009 9:08 AM

Glad to see that investments are going to start-ups, as they are the real growth engine of the US economy, although we could be flat for the few years since the brain drain into finance will take time to reverse.

I def see in New York, the disenchantment with finance, so that's a good thing.

Posted by: Rathan Haran | May 17, 2009 10:31 AM