Earlier this year, I showed that there was little hard evidence of a general bubble in seed-stage investing. As this recent TechCrunch article shows, the meme has persisted. So I thought I’d take another look to see if anything has changed.
I re-crunched the CVR and NVCA data, including the new information for 1H2011 (which I annualized to make the numbers comparable). Bottom line: there has been a slight recovery in the angel contribution and continued growth in the superangel segment. But these increases have been mostly offset by a decrease inVC seed activity. (My collation of the data is available in this Excel file.) Here are updated version of the dollar volume charts.
This is about what I expected. I think angels’ willingness to invest is driven primarily by the macro environment, which has been improving, albeit rather slowly. I think LPs willingness to give VCs more dollars to invest is driven by both the macro environment and historical fund returns, which have been very poor.
Now I was a little surprised at the super angel situation. I had expected a really dramatic expansion from super angels. First, I searched for new super angels using TechCrunch, VentureBeat, and Google. I only found two. IMAF (focused on North Carolina) and Michael Arrington’s CrunchFund (no Web site as of this posting). According to their SEC Form Ds, they are $13M and $16M respectively.
Second, I searched the SEC Edgar database for all the funds on the original list from Chubby Brain. Other than Quest Venture Partners, I was able to locate filings for all the significant funds. Jeff Clavier’s SoftTech VC and Ron Conway’s SV Angel both had decent increases, from $15M to $35M and $20M to $40M respectively. But in my opinion, those two have reputations such that they could support much larger funds. Equally strong were Lerer Ventures’ increase from $7M to $25M and Thrive Capital’s increase from $10M to $40M.
The big winner was Roger Ehrenberg ‘s IA Ventures with a jump from $25M to $100M!
But nobody else has appeared to raise a new fund. Even with these increases, the total confirmed super angel dollars “only” rose from $253M to $440M. That’s a lot, but not the $1B I would have guessed given the press coverage. Also, a ~$200M boost spread over multiple years just isn’t that significant when you’re talking about a market that is $8.5B per year.
So I’ll stick to my guns. No general seed bubble (at least for now).
did you forget to leave out valuations?
I didn’t forget. I just don’t have a good national level data source for valuations. If you click through to the original post, I did some analysis of average investment size, which should be roughly proportional to valuations, given some reasonably plausible assumptions. There doesn’t seem to be any increase recently for angels. In fact, we’re still near the bottom of the post-crash trough.
This is a supply-side analysis, assuming the amount of dollars invested is predominantly supply-side driven.
It would be interesting to see an analysis of number of deals versus total dollars.
It’s possible there’s a bubble on the demand-side, which would means less startups getting funded, or less funds per deal. Alternative explanations: it is becoming so much cheaper to do a startup, same supply feeds more startups, and many startups don’t require seed funding; early stage accelerators (YC, etc) have increased the visibility of seed-stage startups (if not also the raw number of them); fail fast philosophy has increased startup velocity.
Hi Adam. If you click through to my original post, I did look a bit at investment size, graphing it over time for both angels and VCs. Angel investment sizes (all rounds–no round by round data available) are down about 20% from trend, about 30% from peak. VC investment sizes (seed stage) are near their all time high.
Moreover, if the cost of startups has gone down, you’d expect the supply of entrepreneurs to go up too. Lower risk and higher expectation. And anecdotal data that we’ve collected from across the country further suggests no shortage of founders looking for investments. In fact, outside of Silicon Valley, the chances of finding funding seem to have gone down.
So while I think it’s possible this is demand-driven, I would bet heavily on it being supply-driven.
I think your analysis of the macro environment is spot-on, but it looks like some of your SEC numbers are based on the amount of the offering, not the money that has actually been raised. The ambition of a fund manager doesn’t necessarily translate into dollars available for investment.
Hi Brad. Believe me, as a fund manager myself, I definitely know that the size of the offering and the money raised can be very different 🙂 But the size of the offering does represent an upper bound. And since my thesis is that super angels don’t represent enough investment to make up for the dip in traditional angel and VC dollars, I went with the upper bound. You’ll also notice that I assume the super angels deploy all their dollars in a single year, which further overestimates their contribution (I make this explicit in the original post).