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Our Quarterly Venture Capital Report for Q1 2011 saw $1B more in VC funding than Q4 2010 even though deal volume was nearly identical (738 deals in Q1 2011 versus 735 in Q4 2010). So what exactly drove the billion dollar delta? Was it driven by a few mega-financings or something else?
First, the discrepancy was not driven by a handful of mega-deals in Q1. To illustrate this point, we observed the aggregate investment values of the top 10 and top 25 deals in Q1 2011 against those in Q4 2010 and found that the aggregate value of the top 10’s were nearly identical as shown below. Similarly, the aggregate value of the top 25’s only differed by approximately $220 million – leaving a nearly $800 million gap still unaccounted for.
The answer as to what drove the $1 billion delta becomes more apparent when we look at the overall deal median size for the two quarters. The overall median deal size for Q4 2010 was $4.2 million while for Q1 2011 it was $5 million, or 19% higher. To illustrate the impact of the median discrepancy, we observed the overall distribution of deal sizes between the quarters as shown in the chart below:
As noted in the above chart, Q1 2011’s distribution (in red) skews more heavily towards larger deal size buckets, especially in the $10M to $20M, $20M to $40M and $40M to $80M buckets, while Q4 2010 (in blue) skews more heavily towards the smaller deal buckets present in the left part of the chart. So while the easy answer is often that the difference in financing totals is due to the influence of mega-deals, the $1B difference in investment between Q4 2010 and Q1 2011 was driven by an overall shift to larger deals than those of Q4 2010.
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