From The Editor: The Vacation Factor

A mini-controversy is brewing about the 25% decline in Q3 venture investments. (See story, page 15.) Some VCs are of the mind that the numbers were down in part because more VCs are keeping their deals in “stealth” mode. I don’t buy that. For that reasoning to be true, a large number of firms would have had to decide at virtually the same time and independent of one another that they should not report all of their deals in Q3. The fact is that lots of VCs have consistently under-reported their investments for years. It’s not new.

Another factor that flies in the face of that argument is that the number of deals done in China fell by about 20% from Q2 to Q3, according to Zero2IPO, a market researcher. Still another point that can’t be ignored is that the “other” data collection agency that tracks the venture market-who shall remain nameless because it’s a competitor to my publisher, Thomson Venture Economics-also showed a decline in Q3. The decline was smaller (about 4%), but it was a decline nonetheless.

The best explanation I can come up with for the decline is that VCs really did fewer deals. As has been the case historically, a lot of them took time off in the summer.

So what’s different this time around? Why are VCs so quick to blame the decline on an error in data collection or some statistical aberration? It looks like they’re worried about having to explain the decline to their limited partners. While it’s probably true that LPs have accepted that they’re going to lose money on vintage 2000 funds, I would imagine that they’re not happy about it. And when they see someone taking off for a month or more during the summer, that’s as good a reason as any to raise hell at the next LP meeting.

Hey, I’m not saying that VCs don’t deserve to take off for a month or more during the summer. What I am saying is that they shouldn’t blame the numbers for showing that to be the case.

What do you think?

-Lawrence Aragon