December 04, 2007

Half Full /Half Empty, Vol. 3, Total VC$ 

(c) copyright View from Silicon Valley, 2007.  All rights reserved.



Washington insists the US economy is strong.  Wall Street assures us "all is well."  In true California style, Sacramento insists there is no problem which cannot be overcome with a positive attitude (and maybe another bond issue).

This is our third missive on Silicon Valley-specific statistics.  How your situation is personally affected by these results, probably dictates your opinion of the Silicon Valley economy.

Today's figure or merit is "Total" venture capital (VC) spending.  (We also track VC funding "by category," which will be the topic in an upcoming report.) 

Headlines constantly proclaim VC spending is strong and/or that Silicon Valley is still the center of the VC universe.  Silicon Valley's combination of climate, immigration, universities and VC headquarters allegedly ensures we will always remain at the head of the VC class.

The last seven years of Silicon Valley VC spending (both "total" and "by category"), as reported by VentureOne, is updated quarterly at: http://www.viewfromsiliconvalley.com/id112.html

Similar to SIA and SEMI, MSM tends to parrot whatever a VC says in their press release.

Periodically, we "get a bug" and examine industry-wide statistics. (Please see, "VC funding hype, Chapter 2" at http://www.viewfromsiliconvalley.com/id78.html published April 29, 2004.)

Other times, we get a list of local IPOs (aka, "VC liquidity events") and examine company-by-company results. (Please see, "Do we need more IPOs?" at http://www.viewfromsiliconvalley.com/id297.html published January 12, 2007).

Trying to ignoring of what MSM and others say, or say they believe, we prefer to examine actual numbers.  Let's start with a update to a table last published July 1, 2006:

          US       SV
Tot US  Dollars   Dollars  SV%     
2003    $19.4B     $6.8B   35%
2004    $22.0B     $8.2B   37%
2005    $22.8B     $8.1B   36%
2006    $27.2B     $9.0B   33%
2007*   $30.3B     $9.7B   32%  *= run-rate thru 3Q07

"High level" US VC funding is up +56% since 2003 and +11% since 2006.  For Silicon Valley, the figures are +43% in four years and +8 year-over-year (y-o-y).

This seems to be glass-half-full stuff nationally.  Even though Silicon Valley shows a loss of a few share points in this snapshot, double-digit SV VC growth seems reasonable to view as "half full" as well.

Now let's change the focus and look back seven years instead of only four.  (BTW, a focus on four or fewer years, instead of seven, works wonders on mutual fund returns right now, but that's a rant for another day.)

Going back to 2000, the same table shows:

          US       SV
Tot US  Dollars   Dollars  SV%     
2000    $94.7B    $33.6B   36%
2001    $36.3B    $11.7B   33%
2002    $22.0B     $7.5B   34%
2003    $19.4B     $6.8B   35%
2004    $22.0B     $8.2B   37%
2005    $22.8B     $8.1B   36%
2006    $27.2B     $9.0B   33%
2007*   $30.3B     $9.7B   32%  *= run-rate thru 3Q07

Since 2000, US VC funding commitments are -68% and Silicon Valley is -71%.  Yikes!

This could be argued as half-empty.  However, we choose to minimze comparisons to 2000.  After all, that was just a bubble. 

Everybody knows that will never happen again, right?  (Yes, this is sarcasm.  Logically, folks might know 2000 will not repeat any time soon.  However, current house prices coupled with Google and Apple P/E ratios seem to imply a hope of another color.)

OK, fair is fair, let's go all the way back to 1991.  (We could only find Silicon Valley-specific VC funding back to 1998 but dug up VentureOne numbers all the way back to 1991.)

          US       SV
Tot US  Dollars   Dollars  SV%
1991     $3.4B
1992     $4.1B
1993     $4.9B
1994     $5.3B
1995     $8.0B
1996     $9.9B 
1997    $13.1B
1998    $17.9B     $5.6B   31%
1999    $49.5B    $18.4B   37%
2000    $94.7B    $33.6B   36%
2001    $36.3B    $11.7B   33%
2002    $22,0B     $7.5B   34%
2003    $19.4B     $6.8B   35%
2004    $22.0B     $8.2B   37%
2005    $22.8B     $8.1B   36%
2006    $27.2B     $9.0B   33%
2007*   $30.3B     $9.7B   32%  *= run-rate thru 3Q07

Holy smokes!  VentureOne shows VC investing grew from a paltry $3.4B in 1991 to over $30B in 2007.  Over that type of time horizon, this almost seems like steady growth...

Conclusion: 
It's a great time to be a VC. 

Going back four, ten or even 16 years shows VC funding is up.  Ignoring the bubble years, Total VC funding looks positive, both nationally and for Silicon Valley.

Next up:  VC finding, "by category"...