Friday, January 22, 2010

Follow up - Venture Capital stats for 2009 track the prediction for "cautious optimism" in 2010

The first post of this decade and year had the following shimmering title, "Welcome to 2010: Biomed Research is down, Innovation is dying and healthcare is reform is dead".

While the title itself did not contain the words "venture capital", the post talked about venture capital in 2010. At the point when I wrote the article, we heard that venture capitals will shrink in 2010. I will attach a related article/blog post at the bottom.

Today, the National Venture Capital Association (which must be getting a lot of hits for a website on a Friday night) announced a summary of venture funding that went on in 2009. As anticipated, venture funding was down in 2009. Reporters and bloggers, including yours truly are still mulling the data and the interpretations to be made. Let us make a cursory examination as follows.

Positive Developments

One of the first things to strike me from reading an article on the report was the fact that venture funding actually picked up in Q4. This is still in line with the theory that there will be cause for "cautious optimism".

Key Conclusions

From the report and the few articles I have read so far that have been based on the released data, here are a few conclusions we can draw:

1. Biotechnology, just with the sheer size of the funding needs still led in 2009, a year which saw the lowest volume and dollars flow through the venture funding system.

2. Biotechnology funding through venture capital also rose in Q4 of 2009, a ver good development and prognosticator, in the face of falling NIH funding and such.

3. In the interest of those who believe that the location of startups matters or that one region is better for start-ups than the other - well, all of them did equally poorly. You could brag about Routes 128 and such, but the economy blessed its vagaries equally on everyone.

4. Funding also fell across various industries and stages of start ups. There was a very small increase in funding for early stage companies in terms of dollars, but fell steeply in terms of deal volume.

Let's read tea leaves

Over the weekend and the next few days you will see colorful charts with pies, lines and numbers all over. Does this mean much to you?

Not really. The economy worsened over 2008 and 2009, demand fell consequentially and thus venture funding also fell. You can call it "the great panic of 2008", or whatever else that comes to your mind, but the facts remain simple.

What happened last year, was a regular, cliched, run of the mill slow down. This year, in all likelihood will be different. Thus, there will be the much celebrated "cautious optimism" in 2010. What else did you expect?

We all knew. Now we have Excel sheets to prove the facts.

What should an entrepreneur do?

My advice from the previous post still holds true. Bootstrap, be stingy and spendthrift. And may science (or technology) and good horse sense be with you.


1. My post on the state of funding in 2010:

2. Link to NVCA reports, data, etc:

3. The Minnesota take:

4. The New England take:

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