State of New England Venture Quiz: Answers and Commentary

8/5/09Follow @bbuderi

Yesterday, I put out a five-question quiz about the state of venture capital in New England. The questions were culled from data gathered or analyzed by Michael Greeley, chairman of the NEVCA and a general partner with Flybridge Capital Partners, and from the first quarter Venture Insights report by Ernst & Young. Today, we have the answers. I also tracked Greeley down in the south of France to provide some commentary on what it all means. My take on his overall take: there’s good and bad in the numbers, but most of the news is on the gloomy side. But see what you think, and feel free to add your comments at the bottom.

Just one more point. For each question, an average of about 29 percent of readers selected the right answer. I’m not sure if that is good or bad rate for such quizzes, but it certainly highlights the idea that most of us are laboring under at least some misconceptions about the venture/startup climate in New England today.

Here’s how readers’ guesses lined up with reality:

1) What percentage of NEVCA member firms have invested in three or more companies in the past 15 months (data was pulled at end of Q1)?

Reader responses:

venturequiz1

Correct answer: 31 percent, 42 of 137 NEVCA members did three or more deals in the 15-month period studied.

Commentary: “I think it’s a foretelling of the shakeout [of venture firms] that’s coming,” says Greeley. “Clearly a large number of firms, you could argue half the venture firms in town, may not make it, frankly, through the cycle.” This is leading to a dramatic restriction in the deals they are doing.

This might be good in the long run for the firms that do survive. However, he says, “for the entrepreneurs it’s probably a net negative because it gives them fewer options.”

2) What percentage of financings among NEVCA members in the past 15 months were “insider only” follow-on rounds, involving no new investors?

Reader responses:

venturequiz2

Correct answer: 62 percent.

Commentary: Greeley says he’s never seen such a high percentage of insider-only rounds. It’s not hard to figure out, Greeley says, that VCs are hunkering down to focus on existing portfolio companies. “They couldn’t afford to invest fresh capital in new companies when they don’t know where bottom is on their existing companies,” he says.

But there was a deeper level to Greeley’s analysis that was really interesting to me. For starters, he says, the lack of outside investors could be a leading indicator of … Next Page »

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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  • Mick

    Nice compilation Bob! The actual figures are not at all surprising. Your data suggests that the Boston VC community is comprised of primarily ’1 hit wonder’ firms who have much more chaff than wheat and rely on luck rather than smarts. It is amazing that any of them can raise a fund given their across-the-board dismal performance both in terms of investment return and ability to nurture company growth.

  • chris

    These results are interesting. If you look at #3, for example, the correct answer was right at the edge of one of the categories. The pie charts don’t provide the granularity necessary to determine how far off the sample population was. In other words, if everyone who voted for 15 – 19 thought it was at the high end of that, they wouldn’t have been statistically wrong.
    Also, I’d love to see comparable data for west coast VC investing. Were respondents mostly from one region?