VC funding off to strong start in 2011

A new report from CB Insights shows venture investing was healthy in the first quarter of the year, with only a few signs of a bubble.

Dave Rosenberg Co-founder, MuleSource
Dave Rosenberg has more than 15 years of technology and marketing experience that spans from Bell Labs to startup IPOs to open-source and cloud software companies. He is CEO and founder of Nodeable, co-founder of MuleSoft, and managing director for Hardy Way. He is an adviser to DataStax, IT Database, and Puppet Labs.
Dave Rosenberg
2 min read

Private company research firm CB Insights is set to release a new report today on the state of venture capital financing for the first quarter of 2011. The short version: things are looking good, if a bit frothy, with Q1 registering $7.5 billion of venture capital funding invested in 738 deals.

Q1 2011 Venture Financing
Q1 2011 Venture Financing CB Insights

In relation to the last quarter of 2010, there were only three more deals in Q1 of 2011, and both quarters included roughly half of Groupon's $1 billion funding, which doesn't quite explain how Q1 saw roughly $1 billion more in financing for roughly the same number of deals.

In order to make sense of the data, I asked CB Insights co-founder Anand Sanwal to explain. According to Sanwal, first and foremost, it didn't have to do with a handful of megadeals at the top of the first quarter. The 10 largest deals during the last quarter of 2010 added up to $1.44 billion, while the 10 largest deals in the first quarter of 2011 added up to a nearly identical total of $1.49 billion.

The simple answer lies in the median. The overall median deal size for the fourth quarter was $4.2 million, while for the first quarter it was $5 million, or 19 percent higher. This doesn't fully account for the 15 percent difference between Q4 2010's total of $6.5 billion versus Q1 2011's total of $7.5 billion, but it accounts for most. The rest of the discrepancy has to do with nuances in the overall distribution of deal sizes between the quarters. Here's a chart that illustrates that difference:

Venture deal size distribution
Venture deal size distribution CB Insights

Other interesting notes from the report:

  • Over the last six quarters, New York has seen 261 tech deals vs. 250 for Massachusetts. Funding to New York tech companies came in at $1.60 billion vs. $1.44 billion for Massachusetts.
  • Deals in the health care space were down 13 percent year over year while funding grew 11 percent.
  • Seed VC still represented 10 percent of overall deal-flow. Its consistency over the last four quarters suggests it may have found the right level of total VC deals (9 to 11 percent). Early stage deal activity was nearly 50 percent of total deals.
  • California took 39 percent of deals and more than 50 percent of funding. Deal count was down 7 percent sequentially and 3 percent year over year.

Halfway into the second quarter of 2010, there is still a huge amount of venture activity going on, with very competitive deals. While I'm certainly glad that this isn't looking like a bubble, only time will tell.