Last week, Dan Primack continued his discussion from the week before on peHUB about the numbers being published on national trends in Venture Capital fundraising -- and what it all means. His general conclusion was that the numbers are hardly worth celebrating. His three reasons why:
- Bigger fundraising totals do not necessarily translate to better returns.
- Even if size does matter, improving over H1 2009 is no great feat.
- The two major databases - Dow Jones and Thomson Reuters aren't consistent.
I couldn't agree with him more.
I decided to engage in the conversation - and to continue the discussion here. Here is the comment I posted back to Dan:
Dan,
Thanks for bringing to light the challenges involved in data collection. Our organization takes the lead in collecting and publishing the amount of venture investment just in Northeast Ohio and it is a laborious task.
When two reputable data collectors come up with contradictory information I think the only option is to call it inconclusive, as you have wisely done. Given the uncertainty in the data, the only thing to do is talk to entrepreneurs to get real, if only anecdotal, data. Here in NEO I know that our entrepreneurs are definitely feeling more "Thompson" than "Dow Jones" -- growth capital is very difficult to come by.
As you point out, big funds are not necessarily the most successful funds. I'd like to see venture turn back to its roots of smaller funds, managed by a handful of close-knit partners who have relevant backgrounds in the industries in which they are investing. Smaller funds mean smaller management fees and I think that's a good thing. Venture investing becomes more personal, the principals have everything riding on their ability to generate great IRRs (rather than collecting current income via huge management fees.) So, I'm actually okay if the total dollars invested in venture nationally goes down, just to long as the number of firms managing the money increases.
What do you think?
Lynn-Ann Gries is the Chief Investment Officer of JumpStart Ventures. She previously worked in the investment banking departments at both McDonald Investments and Smith Barney (now part of Citigroup), and in the sales and trading area at Morgan Stanley. She received her MBA from New York University’s Stern School of Business and her BA in Economics from Smith College. She currently serves on the board of the Fund for the Future of Shaker Heights, the Great Lakes Science Center and Summer on the Cuyahoga (SOTC).