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What The Heck Actually Happened In US VC During The First Quarter?

tl;dr: Calm down, the United States venture capital industry didn’t implode in the first quarter.

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Getting the pulse of venture capital in the United States can be tricky. When the first quarter ended, reports were issued by firms that track venture capital activity and, depending on who you ask, things were either terrible, or flat, or pretty good.

Not all of those can be true at the same time. Given general confusion in the market, I took a look at a number of data sources to see what the aggregate information can tell us. Mostly, things were unchanged in the first quarter compared to the preceding quarter.

If you were hoping for a scandalous report saying that things are heating up or cooling dramatically, I’m sorry.

Why do we care about all of this? The pace that venture capital investments are made both in terms of aggregate dollar and deal terms is a fun proxy for the current pulse of the startup world. The faster the cadence, the more quickly things are accelerating. A slowdown implies caution and harder times. Through this lens, we can better understand the state of the market.

Number Of Rounds

Today, we’re going to use four different data sources: MoneyTree, VentureSource, Mattermark, and KPMG-CB Insights.

Each data set has its own take on the market. To get the clearest picture, we will take an average of the firms’ figures and then compare the two quarters. Without further ado:

  • Averaged Q4 2015 number of VC deals into US companies: 955
  • Averaged Q1 2016 number of VC deals into US companies: 959

In case you don’t have your calculator handy, total deal flow grew less than a half percent. That’s essentially flat, or UNCH, as we like to say in finance. So, in terms of number of deals executed, nothing happened. Things aren’t dire or great; they are boring.

Number Of Dollars

Now, things get more interesting.

MoneyTree, Mattermark, and KPMG-CB Insights show increases in total invested venture dollars during the first quarter of 2016, compared to the last quarter of 2015. VentureSource shows a decline. Another outlier is Mattermark, which shows the highest increase on a sequential basis. MoneyTree and KPMG-CB Insights both show a less than 10 percent change.

So, what changed? I hate to say it, but things look flat once again. I summed the reported fourth and first quarters from the four groups and took the average:

  • Averaged Q4 2015 US venture capital cash deployment: $13.70 billion.
  • Averaged Q1 2016 US venture capital cash deployment: $13.92 billion.

That works out to a 1.6 percent change. Well, then.

Different Lenses

I picked up this topic after reading Dan Primack’s Term Sheet newsletter, which I presume you already are subscribed to. Noting the multi-billion dollar difference between VentureSource and MoneyTree first quarter aggregate dollar reports, Primack said the following:

“I’m not yet sure why the two groups show such a discrepancy, particularly given that both now include corporate VC groups, although MoneyTree excludes direct corporate investments (i.e., from Google Inc. vs. Google Ventures), and I’m not certain how each provider treats crossover investors like hedge funds and mutual funds. One other issue is that certain very large deals were put into different time periods by the two groups. Lyft’s recent fundraise, for example, was listed as Q4 by VentureSource, but Q1 by MoneyTree.”

Mattermark, to use another example, counts Lyft’s most recent billion dollar round as a first quarter event, not a fourth quarter happening. If I shifted the sum back from the first to the fourth quarter, the percent increase that Mattermark shows in sequential growth is nearly halved.

None of this is to be pejorative to any single group, but it is useful to keep in mind that every analyst group uses different methods in what is counted—do late-stage private equity deals count, for example—regarding venture pace. Also, reports may be revised on a continuing basis.

Come Whatever May

That things were flat from the fourth quarter to the first quarter is notable, but not predictive.

But if you do want to take a look at how things could change ahead, observe the following headline: “U.S. venture capital firms just gathered up the most money they’ve raised in a decade.” And this one: “Venture Capital Has Best Quarter in 10 Years.” The fact that the United States venture community did not pull back on its investment cadence or dollar disbursement, followed by a tectonic funding cycle, does imply we are not facing a short-term squeeze.

*puts on party hat and accepts a glass of champagne

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© Mattermark 2017. Sources: Mattermark Research, Crunchbase, AngelList.
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