Lights, Camera, Action…And a Lot of Action

Two days ago I was on Bloomberg TV’s “Street Smart” with Carol Massar to discuss “Getting Boston’s Edge Back” – which focused on how Boston was doing but quickly turned into a discussion on the race for the next Facebook. As I approached the set I felt confident that I could tell an enthusiastic story about Boston’s innovation economy until Carol asked me why Boston has lost so much market share to the Valley!

I think I did a reasonable job defending Boston. While Carol was great, my biggest issue with the show was how it showed up on YouTube – “Greeley Says Boston VC Not Focused on Social Media” – which is nothing I ever said, quite the opposite actually. I stressed repeatedly that entrepreneurs in Boston solve really hard problems – I even used the word “intractable.” I referenced cloud computing, storage, infrastructure, robotics, life sciences as sectors we excelled at – although I did acknowledge that we might be guilty of selling out too early.

Boston has been #2 to the Valley for a long time in VC activity – admittedly even a distant #2 – both in terms of dollars invested and number of companies. We also are a smaller geography with crummy weather 6 months a year. In fact – and quite timely – late last week 2Q11 funding data was released and there are some interesting data there:

• Per CB Insights VC investment in Massachusetts in 2Q11 was $1.1 billion in 89 companies, up from $719 million and 85 companies the prior quarter, and up from $689 million and 85 companies in 2Q10
• Nationally $7.6 billion was invested in 768 companies (this continues to baffle me – VC’s are investing at a nearly $30 billion annual pace but we will only raise around $15 billion this year in new funds)
• 12% of all investment was deemed to be “seed” investing – a five quarter high
• Clear evidence of consolidation as California/Massachusetts/New York companies accounted for 74% of all dollars raised versus 69% in prior quarter (or 57% in 4Q10)
• Nationally 18% of dollars invested were “seed/Series A” versus 21% for “Series B”
• Internet was 36% of all dollars invested with healthcare (25%), mobile (7%), energy (6%), non-internet software (6%), and hardware (5%)  rounding out the balance

The diversity of industries represented in the Massachusetts data was impressive, and while some people wring their hands about us being #2,this diversity augurs well for a healthy VC marketplace in the future. Why do I say that?

• In terms of number of companies which raised capital in 2Q11, healthcare was 34% while internet (27%), non-internet software (13%), mobile (8%), energy (4%) and industrial (4%) were some of the other categories
• On a dollars invested basis, healthcare jumps to 52% of the total while internet (24%), non-internet software (5%), mobile (5%), energy (6%), and industrial (3%) fill out the balance

But what I often point to is the fact that of the $175 billion managed nationally by VC’s, the local VC community manages approximately $35 billion or 20% (more than the 15% our local companies attracted). We continue to have a strength of VC activity which is critical for the future health of the Boston innovation scene.

But we can not stop aspiring to launch the next Facebook here. Let’s not let the next great one get away – unfortunately it may just not be in social media/commerce.