The Money Tree Ain’t Bloomin’, Folks

ga_cash.jpgThe latest numbers are in from the PwC Money Tree report, a quarterly study of venture capital investment activity in the United States. Despite the positive headlines in the press releases (“Venture Capital Investing off to a Solid Start in 2006 with $5.6 billion”), Georgia still isn’t faring very well.

Across the country last quarter (Q1/2006), there was a total of $5.6B invested across 761 deals. Investment activity here in Georgia was disappointing, as was the metro market here in Atlanta.

In Q1/2006, Georgia companies received $47.3M across 15 deals. In Q1 of the previous year (2005), Georgia companies raised $31.7M across 10 deals. That sounds like good news, right? I mean that represents a 49% increase from the same quarter a year before.

However, when you look the trailing 3 quarters of venture activity (Q2, Q3, and Q4 of 2005), the total raised each quarter was $61M, $100.8M, and $69M respectively. So while we may be “up” from a year ago, we are actually trending downward a bit.

More interesting to me was the fact that out of the 27 investment firms participating in deals in Q1, only 5 of them were Georgia-based investors. That means that over 80% of the investments came from out-of-state sources. Just as many firms in California (5) participated in rounds here in Georgia.

Out of those 15 deals for Q1, only 2 were seed/early stage rounds. The other 13 were later stage/expansion deals. Bad news for entrepreneurs. Investors are still very much targeting later stage plays to mitigate as much risk as possible. Again, my advice to local entrepreneurs – start your capital search elsewhere if you are raising early stage capital (or look to local angels/friends family). Bootstrap as long as you can, but remember the famous words of John B. L. Soule … “go west, young man!”

I’ll leave you with a quote that I overheard a few weeks back in the restroom at The Buckhead Club. After hearing the dean of the UGA/Terry Business School present a spiel on the state of the Georgia Economy, I went to the restroom. As I was walking out, a local VC was walking in (chatting with his friend):

“I don’t know what the big deal is, we’re doing just fine here in Georgia. Our economy is great. It is basically the media bashing the President.”

Suffice it to say, I was at a loss for words.

What say you? I’d be curious to hear some other opinions out there. Feel free to use the comment form below to submit your comments on this issue!



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