No VC Bubble Here

The Financial Times reports that “VC Rises to Dotcom Bubble Levels,” because 2006 VC disbursements are expected to hit their highest levels since 2001. How remarkably silly. Not just the conclusion, but also the supporting data. The article reads, in part:

Venture capitalists in the US, Europe, China and Israel invested $25.4bn in the first three quarters this year, with $7bn expected in the final quarter… Last year, global investments in venture capital targets – normally defined as companies up to 10 years old – reached $30.9bn; up from $29bn in 2004, $27bn in 2003 and $28.6bn in 2002.

Blogger Paul Kedrosky already has taken the FT to task for its first mistake: The editorial decision to posit the 2006 data as gaining on 2001, rather than as a distant second. As Paul writes: “Sure, it’s the highest it’s been in four years, but you might equally write that VC funding is still 36% off its dotcom peak, or that it is more or less flat year-over-year.”

The second mistake, however, is far larger: Identifying 2001 as the VC bubble’s peak. It wasn’t. 2000 was the peak, with 2001 being the first year of decline.

FT uses Ernst & Young data, but what follows comes from the MoneyTree Survey. Apologies for the inconsistency, but this is simply more readily available to a Thomson Financial partisan/employee like me:

VC_Disbursements.xls

It is true that this data only is for U.S. investment, but the general 2000 and 2001 trend lines are not much different from the global version. Specifically, there was more than 2X the amount of VC disbursed in 2000 than in 2001.

So if 2000 was the peak, how does 2006 rank so far. The chart’s 2006 data obviously is not complete — and will rise signficiantly once surveys start pouring in — but still is about one-fifth of the bubble total. Even if you want to be very generous by assuming huge Asian investment, it still wouldn’t get higher than one-quarter.

Venture capitalists may indeed approach bubble totals again, but they didn’t get close in 2006.