Possible Insight

Archive for November 2011

Update on the “Seed Bubble”

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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).

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Written by Kevin

November 28, 2011 at 9:42 pm