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Why Did the Average Deal Size Grow 2.5x in the Past 6 Years?

By Jeff Carlson



As discussed in the first post, the average size of rounds in which at least one CVC unit participated increased from $22.1m per investment in 2012 to $54.2m in 2017, an increase by a factor of 2.5x.

This post will focus on answering the question raised in the first post: how much of the 2.5x increase in average investment size from 2012 to 2017 was due to:

  • A shift towards more later stage investments

versus

  • An increase in investment sizes for comparable stages

The source of information for all the analysis in this post comes from GCV Analytics which is available for through a subscription from Global Corporate Venturing.


There are a couple of factors that could explain the large increase in average investment size. It could be that more of the investments are being made in later stages (series D, E, and beyond), where the investment amounts are typically much larger. Another factor might be that the average amounts invested for each investment stage have increased significantly. We’ll look at both possibilities.


The bar chart below shows the distribution of CVC investments across round types made in 2012 versus 2017.  (Note this analysis is only for those investments where the monetary size of the investment is known). Except for the deals falling into the “other” category, the distribution across the various stages is not drastically different. The portion of investments in seed rounds has actually declined (as a percentage of the total number of investments for each year), whereas there have been slight increases in both series A and series B investments. The percentage of series C, D, and E and beyond also declined in 2017.


Comparison of CVC Deals Distribution Between Years*


  • Excludes Investments in which the deal size is unknown

20% to 30% of the deals are captured in the “other” category. The majority of these represent investments which the specific round type was not publicly announced. The remainder were typically considered stake purchases. We see an overall increase in the percentage of deals that fall into this “other” category in 2017.


To understand how these distributions in different rounds may account for the 2.5x increase in average round size, let's look at the cumulative distributions of deals, progressing from early to late stage rounds.  (For this analysis, we are also excluding the rounds in the “other” category).


Comparison of Cumulative Distributions Between Years*


  • Excludes Investments in which the deal size is unknown

  • Excludes “Other” round types

As evident in the bar chart above, there are slightly fewer (again, as a percentage of the total numbers of) investments in seed rounds in 2017 as compared to 2012. However, there is a significant increase in the portion of investments in early stage rounds.  In 2017, almost 72% of the deals were in seed, series A, or series B rounds; up from 65% in 2012. The trend of more early investments in 2017 continues, even from seed all the way through series B and C rounds.


You can see that by 2017, more investments were being made in earlier rounds, where investment amounts (and company valuations) are historically smaller. This is exactly the opposite of what one might guess, given the large increases in average investment sizes between 2017 versus 2012.


Might the difference in the investment round distribution account for at least some of the increase in average round size? We analyzed the average round size by round type in 2012 in combination with the distribution of number of deals for 2012 and 2017 and found that the difference in distribution had essentially no effect on the overall average round sizes between the two years.  


On the other hand, the average round sizes by round type have increased significantly from 2012 to 2017. The increases vary from nearly doubling for the series C rounds (from $23m to $42m) to nearly a 5x increase in Series E and beyond ($39m to $228m).


Comparison of Round Sizes Between Years*



  • Excludes Investments in which the deal size is unknown

  • Excludes “Other” round types

Average round sizes are helpful to understanding where the dollars are being invested, but it is also informative to look a bit closer at the distributions of rounds sizes for each individual investment in each round type.


Each dot in the chart below represents an investment and the vertical axis is the size of that investment (please note this is a logarithmic scale, so each tick mark represents an order of magnitude increase).  The median round sizes for each round type and year are labelled.  The median round size for E and Beyond rounds increased from $25.8m in 2012 to $61m 2017; an increase of 2.4x.


The fact that the median round sizes for E and beyond rounds grew by 2.4 whereas the averages grew by almost 5x indicates that the upper tail of the distribution has grown significantly.  In other words, there are a relatively small number of deals that are very large and are driving up the average size dramatically.


CVC Deal Sizes Between Years*

  • Excludes Investments in which the deal size is unknown

  • Excludes “Other” round types

In 2012, the largest “E and beyond” deal size was Intarcia (identified in the chart above) for $210m.


On the other hand, the table below shows the 26 “E and beyond” deals in 2017 that were higher than the largest similar deal in 2012. These deals alone account for over 16% of the total investments made in 2017.


2017 E and Beyond investments greater than $210m




In conclusion, we have determined that the large increase in average investment sizes from 2012 to 2017 has essentially nothing to do with a change in the stages in which these investments have occurred. Instead, it can be fully explained the explosion in the size of deals within each round type. Most of this increase has been driven by a relatively small number of extremely large (> $250m) investments, especially in the later stages, many of which are identified in the table above.

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