Sep 19 2008
More Data on The SoCal VC Market
I’ve had a lot of questions and comments on the VC market blog from the other day. I addition, Ben Quo posted a note about the topic on his blog today. Below is a link to a .pdf with excerpts from our study on the topic:
Excerpts from Momentum’s VC Study: Summer ‘08
A few comments:
- Many will point to the fact that a lot of deals are happening and a lot of money is coming into Southern California. However, look at the ratio of seed and early stage deals to later stage deals in Southern California. Assuming that not all A round companies make it to round B… shouldn’t the number of early funding events be much larger than the number of later rounds? In fact, early stage deals are a fraction of later deals. So, while the big guys from out of town might like to come hunting in Southern California for deals at this point, it is not clear that there will be ripe hunting grounds a few years from now.
- Despite what the large VCs might say, it really doesn’t appear that they are placing small bets in order to seed the market. Especially if they are from out of town. It is too much work to make these investments and investors need to be close to keep a tight watch on things. Ironically, a first round deal usually needs more care and feeding than a larger deal. Take a hard look at the actual number of these experimental investments from the big funds. There really aren’t very many.
- Perhaps most troubling, look at new capital formation in Southern California. We still have money being deployed from funds raised over the past several years — but, it is not clear who will be investing in early stage deals a few years from now. (e.g. there are not many new sub-$50mm funds with a clear strategy to do early deals).
As I’ve said before, it is an important problem for the region to address.
