Emerging Enterprise Center Blog - Commentary and Analysis For Entrepreneurs and Startups

I know that we are all bored with the perennial comparisons between the Valley and New England in which New England inevitably appears as the landof the hide-bound and the home of the risk adverse.  The fact that we are all bored with the discussion does not however address the merits of the claim.  It just blinds us to the looming consequence: New England, already only half the size of the Valley by many measures, will lose further ground as exciting start-ups from the Valley (and New York, but we will get to that in a minute) continue to make their mark and investor money drifts (or perhaps races) towards perceived greener pastures.

I finally got around to my quarterly comparison of deal terms published by our firm, Fenwick (a Valley based firm that reports on transactions in the Valley) and Cooley (a firm with many offices that reports on transactions handled by it).

And here of New York:  No one that I am aware of reports on New York transactions.  But, starting with Q1 o f 2012, we will, because we are doing increasing amounts of emerging company work there.

So here is part 1 of my thesis:  I expect that terms will be most favorable to entrepreneurs in the Valley, least favorable in New England and somewhere in between for the rest.  Of course, I think that the “somewhere in between” number will include Cooley’s New England transactions (which will have the effect of making them generally seem less favorable to entrepreneurs).  We should all note that Cooley feels compelled (at least in some instances) to report numbers for Northern California separately from the others.

So, without further fanfare, below is the table that compares certain of the deal terms reported on by the three firms for Q4 of 2011.

Fourth Quarter 2011 Transaction Terms

Of course I knew what the chart would say before I made the prediction, so no surprise that it supports my thesis.

Here, however, is part 2 of my thesis:  When we start reporting on New York separately (which we will be doing starting with a Q1, 2012 report – to come out soon), it will show that terms in New York are far closer to those in the Valley than to those in New England.  Now I don’t’ know the answer to that question, but we are doing the research now and will have an answer soon.

Keep in mind that New York has gone from nowhere just a few years ago to equaling (or passing by some measures) New England.  Could it be that NYC is just a friendlier place for entrepreneurs than New England?

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.

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.

Quarterly Review of Series A Financings and Series B and Later Round Financings: Third Quarter 2010