EEC Perspectives -- January 2009 Issue

Posted by on January 16, 2009

We present with pleasure the next issue of EEC Perspectives, our periodic look at venture activity in the New England region. With this issue we are back to Series A transactions, featuring those closing during the third quarter of 2008. (Prior issues of EEC Perspectives, which alternate between Series A and later rounds, can be found in the News and Publications section of the EEC website.)

Each issue of EEC Perspectives presents data and analysis on the number and size of transactions, as well as an breakdown of certain key financial and legal terms of the reported transactions. In addition, we feature a guest perspective from the VC community. For this issue, we asked Carl Stjernfeldt of Castile Ventures to comment on first round financings in 2008. Carl points out that despite the astounding amount of negative global economic news, there was actually a positive regional perspective available for the year just ended, i.e., on average, in every week in ’08 saw a New England technology company raise its first round of venture capital.

We hope that you enjoy this issue and we plan to continue to bring you other points of view in future issues of EEC Perspectives.

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Dave Broadwin Partner

Dave heads the Emerging Enterprise Center. His practice focuses on representation of technology companies from start up to exit. Dave also handles venture financings, merger...

Prithvi Tanwar Associate

Prithvi Tanwar is an Associate in the firm’s Business Department. His practice focuses on advising emerging life science and technology companies as well as U.S....

Q1 venture activity levels and what will Q2 show?

It has been a long time since I wrote a blog post. In part, I just ran out of steam. In part, I have been running non-stop since May. Why? Because business has picked up in a major way. Since May the pace of financings and exits has picked up in a very noticeable way. So, here is a prediction, when I write the comparison of Q2 deals published by by Foley Hoag, Fenwick, it will show a major jump from the Q1 numbers.

Here is what my partner, Dave Pierson, had to say about Q1 activity, “The total number of New England Series A transactions dropped 46% from Q4 …. The total number of New Englsnd Series B and Later round transactions during Q1 decreased 21% from Q4…”

Fenwick had similar observations. Fenwick had this to say, “Venture capitalists invested $6.4 billion in 661 deals in the U.S. in 1Q11, compared to $7.6 billion in 735 deals reported in January 2011 for 4Q10, according to Dow Jones VentureSource (“VentureSource”). Although this represents a 16% decline in dollars and a 10% decline in deal volume from 4Q10, the 1Q11 results were generally flat with the average of $6.6 billion raised per quarter in 2010.”

All I can say is that either Foley Hoag is lucky or the venture world took off in Q2.

Here is the open question, given the turmoil in the public markets, will I have written plenty of new posts and be lamenting the amount of time available for such pursuits?

Without further adieu, below is the same table I produce each quarter. This is, of course, a table reflecting Q1 activity.

Term	Foley Hoag New England Series A	Foley Hoag New England Series B and Later	Fenwick Silicon Valley All Series
Cumulative Dividends	42%	52%	8%
Preference with Participation	42%	35%	43%
Redemption	85%	82%	20%
Pay to Play	15%	40%	5%

There is no surprise in these numbers. They have followed a consistent pattern from quarter to quarter for as long as I have been tracking them. Note the greater frequency of dividends and redemption provisions in New England deals. Having wondered about why there is not convergence on terms, given that so many of the leading venture firms do deals on both coasts and having asked a number of people in the business about it, I have come to the conclusion that it the divergence in these terms reflects a basic cultural bias. New England just has more of a lender mentality than the Valley.

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