Maine saw a single venture capital deal in the fourth quarter of 2016, mirroring a national weakening of VC activity in the last three months of the year, according to a new report that tracks venture capital deals across the country on a quarterly basis.
The MoneyTree Report, released on Wednesday by PricewaterhouseCoopers (PwC) and CB Insights, cites Tilson Technology’s $3 million round, which closed in October, as the only fourth-quarter deal that happened in Maine.
Nationally, investors in the fourth quarter deployed $11.7 billion to U.S. VC-backed startups across 982 deals, down 17% in dollars and 14% in deals from the previous quarter.
But the report doesn’t tell the whole story and deserves an asterisk to provide explanation. The MoneyTree Report excluded two investment deals that happened in Maine during the fourth quarter—CourseStorm raised $760,000 in October from a group of investors that included the Maine Venture Fund, while Cerahelix raised $510,000 in November, also from the Maine Venture Fund, as well as members of the Maine Angels and Bangor Angels.
In the past, these deals would have been included in the MoneyTree Report, as would all such deals involving the Maine Venture Fund, a quasi-state agency that is run as a professional venture capital firm, though invests only in Maine-based businesses.
That, however, is no longer the case. The fourth quarter brought a shake up in the report’s authorship and a corresponding change in methodology. Whereas the report had previously been presented by PwC and the National Venture Capital Association based on data from Thomson Reuters, the report released this week is based for the first time on data collected by CB Insights, a private market intelligence firm out of New York City that has exploded onto the VC scene the last few years. The NVCA and Thomson Reuters are no longer involved in the report.
Thomson Reuters prompted the Maine Venture Fund for data each quarter for inclusion in the report. CB Insights, on the other hand, will not include VC deals made by organizations like the Maine Venture Fund in the MoneyTree Report because it considers them the equivalent of state funding, not venture capital, a company spokesperson confirmed for Maine Startups Insider.
This change in methodology not only led to the under reporting of investment deals in the fourth quarter, but it has also led to the purging of past deals from the historical data.
For example, in July the MoneyTree Report noted that five deals totaling $3.4 million occurred in Maine during the second quarter of 2016. Four of those deals involved the Maine Venture Fund. However, the data provided this week by PwC and CB Insights now only shows a single deal happening in Maine during the second quarter. While it doesn’t name the single deal, I suspect it is the $641,000 that Pika Energy in Westbrook raised from CEI Ventures and other undisclosed firms. Tilson Technology’s fourth-quarter deal also involved CEI Ventures as an investor, so I know they still include those deals. The four deals purged from the data set are those involving Maine Craft Distilling, Mingle Analytics, Ocean Approved, and Orono Spectral Solutions.
Another stark example of how this change in methodology changes the appearance of Maine’s VC activity can be seen in the 2014 data. Previous versions of the MoneyTree Report database noted that Maine companies received roughly $18.7 million across 12 deals in 2014. The data released this week claims Maine companies received only $2.3 million in VC over four deals that year.
Does it really matter?
In the end, what does this mean? And does it really matter?
Yes and no. A national report’s decision to shift methodology obviously doesn’t diminish the fact Maine companies are raising the equivalent of venture capital from the Maine Venture Fund. So, from that point of view, it shouldn’t really matter.
Where the change could hurt is in appearances, according to John Burns, managing director of the Maine Venture Fund.
This new methodology “does paint a drearier picture of what’s happening in Maine,” Burns said.
CB Insights is choosing to exclude investment deals from quasi-state VC firms in all states, so they’re not discriminating.
“However, my firmly held opinion though is that the dreariness quotient—I just made that term up—disproportionally impacts smaller rural states,” Burns said.
The smaller the number of deals, the bigger impact such a change will have. From the outside looking in, 12 deals a year looks like a much more active VC-investment landscape than four deals.
So, going forward, Maine Startups Insider will continue to report on the MoneyTree Report each quarter as it does put VC activity in Maine into context. However, I’ll be adding an asterisk.