9,806 Investors 
It’s that time of the year again: this week, the two unchallenged authorities in all things relating to VC funding activity, VentureSource (DowJones) and MoneyTree (data by ThomsonReuters), released their Q2 roundup results. And once again, anyone actually interested in the numbers will come away with a profound sense of confusion and very little insight. How can it be that one source reports $3.7 Billion in funding and 15% growth over Q1 (ThomsonReuters), while the other declares the actual number to be $5.27 Billion representing a 32% growth rate over Q1 (DowJones)? Further exploration of the VC activity figures provided by the two sources over the last six quarters paints an alarmingly schizophrenic picture: the numbers are consistently divergent, and often wildly so, on average by $652 million. (Note: lots of graphs below vividly illustrate the differences, so read on).
What’s even more disturbing is how these supposed standard bearers expect everyone to simply parrot their numbers and glibly attribute the differences to “discrepancies in methodology and sourcing.” Really? Is it that easy to quietly sweep a delta of Grand Canyon proportions (in this Quarter about $1.5 Billion over an average total of $4.5 Billion) under the rug without even the inkling of critical discussion? Should we not at the very least be wondering who’s wrong and who’s right and how to make sense of it all? If there are indeed severe flaws in one, or in some instances maybe even both reports, surely it matters, especially given the importance of venture capital and venture capital-backed companies to US innovation and growth?
In a best case scenario, some half-way logical and very long-winded explanation by both information providers about reporting errors, timing issues, classification methods, and (if you dig deep) the distinction between rounds and tranches, will be able to account for a large part of the differences. But that should not be satisfactory. If this is a story about inefficient and imprecise data collection via surveys (which, in part, we at ChubbyBrain believe), then let’s talk about it. If this about defining metrics or determining which are the best metrics to track, i.e. tranches vs. rounds, and how to classify them, then let’s have that discussion as well. One thing is certain: Right now only VentureSource and MoneyTree are benefitting from the confusion. It handily places them outside of the realm of mutual scrutiny and accountability and keeps the consumer of this data in the dark.
And so we’re stepping into the ring to offer a better way to deliver insights on venture capital activity in a more timely, accurate and transparent manner. Think of us as an arbiter of sorts, the David to these Goliaths. Our process leverages not just thoughtfully applied data aggregation and parsing technology but also mass collaboration (yes we’re a highly moderated wiki). We may be the new kid on the block, but given our clear set of methodological principles and rigorous approach, we are confident in the accuracy of our Q2 venture capital data report issued last Tuesday. (In this instance, our numbers confirm the figures and trends Dow Jones outlined in its own roundup, which was released five days after ChubbyBrain published its report. ChubbyBrain data also powers the recent ReadWriteWeb Q2 VC Funding Report).
Below are graphs showing data from VentureSource and Thomson over the period from Q1′08 through Q2′09:
First, let’s look at the published figures for total dollars invested (summarized in the graph below). The average difference over the last five quarters has been $652M, and in Q2 ‘09, the difference between the two was a whopping $1.57B on average total funding of $4.5B. These are very material discrepancies especially given the two firms are attempting to measure the same (or at least very similar) figures.
The next graph shows the difference in published figures for each quarter - the disparities become even more apparent.
Next, as we look at the number of investments reported, on average there is a delta of 222 deals between the two sources on a quarterly basis. Again, on anywhere from 600-1000 deals per quarter, a difference of 222 deals is material. While there seems to be an emerging trend toward convergence in the quantity of deals reported by the two sources, this is somewhat bizarrely offset by the growing divergence in the total funding number.
In general, we’ve observed that ThomsonReuters tends to shows higher deal count numbers while Dow Jones reports higher investment totals. By combining these two metrics for each provider to calculate average deal size, we see another striking difference.
And finally, as we look at their investor rankings for Q1 ‘09, there are again some major deviations in their published information. These venture capital rankings or league tables seem to reveal the shortfalls of the survey method used by both to capture their data. The table below shows the differences in rankings as well as number of deals per investor reported by Dow Jones and ThompsonReuters per their research. While there are differences on virtually every line, two of the most glaring are Canaan Partners who Dow Jones ranked as #2 while ThomsonReuters had them at #23, and Oak Investment Partners who Thomson had ranked #1 with 13 deals but who didn’t even make the rankings based on Dow Jones’ research.
July 23rd, 2009 at
Hi,
Noticed the same issue few days ago and have been wondering that how on earth Venture Source is releasing some figures saying that U.S markets totaled 79% of all “major regions” investments when there are not even any comparable statistics gathered from many VC markets - not to mention that they haven’t cleared well enough where their U.S market data is based on.
July 23rd, 2009 at
Hi Olli,
Thanks for the comment. We haven’t seen the specific report you are alluding to, but generally, we think this speaks to issues around transparency of process, definitions, metrics, etc. We hope that others will join the conversation and ask similar questions as the innovative entrepreneurial economy, e.g., promising startups and the investors that back them, are important on so many levels. And as a result, the measurement of activity in this arena in a clear, rigorous and ultimately correct way is very important.
Thanks again,
The Chubby Research team
September 1st, 2009 at
[...] Despite the steady beat of news predicting the demise and destruction of the venture capital asset class, could the reports of venture capital’s death be greatly exaggerated? Q2 2009 offers some hope as evidenced by a quarter over quarter bounce in investment by venture capital firms. With the numbers tallied, Q2 2009 saw $5.3B of funding flowing from venture capital investors to entrepreneurs representing healthy improvement over the prior quarter. Yes, we acknowledge this growth (1) comes off multi-year lows in Q1, (2) that a single data point doesn’t make for a trend and hence a recovery and (3) that investment levels are approaching what they were in prior quarters of 2008. But, as the highlights below demonstrate, the healthy bounce back is still noteworthy. For those interested in the quarterly numbers, here are some related posts: VentureSource Confirms ChubbyBrain Numbers Five Days Later - Nice Job Dow Jones andEnough’s Enough - Time to Ask Some Hard Questions About VentureSource and MoneyTree Numbers [...]
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