Q2 Venture Capital (VC) Investment Jumps 61% To $5.3Bn

According to Chubby Brain, 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.

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Its The Data That 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 saw when we spoke to entrepreneurs and investors and 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 Chubby Brain 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 Chubby Brain had included:

• Global Deals. This is ONLY USA 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 like to include more Angel and Global deals. They matter to early stage innovation and that is what matters to entrepreneurs. But that would not dramatically change 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, Chubby Brain 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 Chubby Brain has found is accurate.

Trends

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 to be good for the general economy at some point in the not too distant future.

Discuss