Is Venture Up or Down? Dow Jones Survey Shows Retreat in Q3 VC Activity, Flatly Contradicting Rival Report
After reporting earlier this week that third-quarter venture capital investments were up 14 percent nationwide over the second quarter—based on data from New York-based ChubbyBrain—we now have data from Dow Jones VentureSource for the same period that shows almost the opposite: a 5.5 percent decline in venture capital deployed during the quarter.
Instead of the $6 billion going into 680 deals that ChubbyBrain counted, Dow Jones VentureSource found just $5.1 billion was invested in 616 deals during the three months that ended Sept. 30. Dow Jones says the dollar figure is down almost 6 percent from the $5.4 billion (595 deals) it counted in the preceding quarter—and a 38 percent drop from the $8.2 billion invested in 663 deals during the third quarter of 2008.
As you might expect, Dow Jones VentureSource also reached contradictory conclusions. “The slow recovery we’ve seen for venture capital has faltered,” says Jessica Canning, director of global research for Dow Jones VentureSource, in a statement. “As liquidity and fundraising lag after the economic meltdown in 2008, investors have no choice but to keep a tight rein on investments until the industry is on more solid ground.”
ChubbyBrain, which showed a third quarter year-over-year decline of 16 percent, concluded that its data “has strengthened the case for cautious optimism…This positive momentum has been further reinforced by the brighter outlook in public equity markets and even some IPO success for VC backed companies.”
Who are we to believe?
The venture surveys began as a bit of cagey marketing by rival accounting firms PricewaterhouseCoopers and Ernst & Young. The competing surveys have changed through the years, mostly by expanding and adding partners, and in the process they have become a running battle of one-upsmanship, exclusive media partnerships, and market branding. This is evident in the insufferably long brand name that news organizations are required to use for “The MoneyTree Survey from PricewaterhouseCoopers and the National Venture Capital Association, based on date from Thomson Reuters.”
I’ve worked for a long time with the two original competing VC surveys, and I’ve grown accustomed to seeing occasionally significant variations in percentages and details. But the general trend was usually the same. A gap this wide, though, is too big to ignore—partly because it represents a potential black eye for either the newcomers at ChubbyBrain or the more grizzled veterans at Dow Jones VentureSource.
When I asked ChubbyBrain co-founder Anand Sanwal about Dow Jones’ contrary findings in its third-quarter venture survey, he said, “The story is less about the venture capital numbers than it is about flawed methodology in the way they do their research. They’re sort of fundamentally built on a survey technique, which was probably a great way of doing things in the ‘90s. But there are better sources of data available today.”
Sanwal says ChubbyBrain relies on a variety of regulatory filings and interviews to collect its data. He calls the Dow Jones methodology “self-selecting” because it depends on whether someone at a venture firm or startup company has the time and is willing to answer a series of questions or fill out a questionnaire.
When I put basically the same question to Dow Jones spokeswoman Kim Gagliardi, she responded in an email:
“Every firm uses a unique methodology, counting deals and dollars differently, which accounts for differences between datasets. We can only speak to our methods, which have been tested and refined over the past 20 years. We have a large team of researchers working around the world to confirm every deal and detail.
“Our definition of what is (and is not) venture capital is the clearest and best tested in the industry. We only count closed deals and never include debt/loans, government grants or private equity funding. We do not count tranches individually as deals.”
One indication of which survey accurately measures recent venture investing activity could come early Tuesday. That’s when Q3 venture capital investment data is set to be released in that MoneyTree Survey from PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.