No one wants to miss the great gravy train of 21st century venture capital.
Earlier this year, Silicon Valley-based IVP closed on $ 1.8 billion for its 17th and largest flagship venture capital fund, with a stated strategy of betting on late-stage tech darlings. and high growth like Robinhood and Coinbase. This was the company’s official account for creating a new big fund, but it arguably says a lot more about how fund distributors like pensions and endowments are flooding the venture capital market with so massive that venture capitalists are barely standing still trying to keep pace.
Such is the scale of capital thrown into the asset class by limited partners, who rush to increase their own VC bets in search of ever greater exposure to the opportunities of the tech boom.
The latest data collected by PitchBook paints a dramatic picture of the U.S. venture capital market: just after 2020, set new records for fundraising, deal flow, and venture capital outflows, then 2021 (or the three quarters). And, boom, he’s already broken the old records, even though he still has three months left on the calendar.
The dynamics of the venture capital market have a circular quality in which investors support venture capital funds, which deploy capital to support startups, which, if all goes well, grow and are sold or made public, producing cash returns that are invested in even more fundraising.
But the foundation of this ecosystem really begins with venture capital firms raising capital from limited partners. And in the first nine months of this year, VCs in the United States produced a record $ 96 billion out of 526 funds, surpassing the $ 85.8 billion raised for 665 funds in 2020, according to the latest. PitchBook-NVCA Business Monitor.
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The fact that the industry has already set a new record despite a smaller number of funds underlines the effect of many more mega-funds in the mix. In this year’s case, the companies closed 19 different vehicles of at least $ 1 billion and 27 of at least $ 500 million. Indeed, the average fund size is higher than ever at around $ 195 million.
At this rate, the $ 100 billion mark in venture capital funding is within reach for the first time.
The largest U.S. fund of 2021 so far is Tiger Global’s $ 6.6 billion flagship vehicle. It should be noted that in addition to the pillars of the industry, many of the major funds have been raised by crossover and so-called non-traditional venture capitalists, such as Tiger and private equity giant TPG, which deployed a $ 5.4 billion climate fund in July.
In the race to secure a place on the capitalization tables of high-growth startups, the industry is building up ever-larger war chests, and more. This huge influx of capital has created an embarrassment of riches that roam Silicon Valley, leading to a host of other mind-boggling trends in 2021.
“Big growth for companies, bigger funds, faster growth, more exits,” said Hans Tung, managing partner of GGV Capital, which closed a new batch of funds earlier this year for a total of 2.52 billions of dollars.
Another sign that venture capital funds have more than enough firepower: data from PitchBook shows the industry’s cumulative dry powder, or undeployed capital, is significantly higher than last year and s’ now stands at around $ 222 billion, a level never seen in history. Tung said GGV is seeing an increasing number of potential high-quality deals that it is turning down just because the business is limited; it has “only a limited amount of bandwidth” to make its capital work.
Witness, for example, the record number of deals over $ 100 million signed, as VCs of all stripes and sizes hand out bigger checks in fundraising rounds.
Those rounds have already reached a new record of $ 238.7 billion in total capital raised by venture-backed companies, eclipsing the high of $ 166.4 billion set last year.
This overall investment is fueled by the record 597 mega-towers this year. Topping the list in the third quarter were deals that were particularly big for companies like electric truck startup Rivian ($ 2.5 billion), specialist finance platform Generate ($ 2 billion), and management provider. Databricks data ($ 1.6 billion).
While mega-deals have propelled the industry to an all-time high, the sector that dominates this year’s deals has been squarely in the corporate and fintech realms. As GGV’s Tung noted, overall valuation growth is driven less by consumer technology than before; these days, they’re startups that cater to business-driven technologies, such as data management, remote work applications, and cybersecurity. According to PitchBook data, the average transaction size for enterprise tech tours jumped this year to $ 27.7 million from $ 16.8 million last year.
FinTech in particular has eclipsed other verticals. A record total of $ 39 billion in venture capital was invested this year in financial startups like Chime, Carta and Varo, all of which raised large sums in the third quarter. By comparison, the previous record was around $ 20 billion, raised last year.
The face of venture capital investing has changed forever. Gone are the days when trading was the only province for traditional venture capital firms based on Silicon Valley’s famed Sand Hill Road.
More often than not in today’s market, fundraising rounds involve asset managers, hedge funds, corporations and other so-called non-traditional investors invading the venture capital market. And the companies that lift these rounds of financing are increasingly posting much higher valuations, at least in part because non-traditional investors are generally less price sensitive than their peers in the mainstream of venture capital.
Expect the era of high price multiples to continue as non-traditional investors step up. Often labeled as “tourists” to the risk market, this group has invested capital worth $ 350 billion, according to PitchBook estimates. Talk about the firepower.
When tourists flock to popular vacation spots, prices soar at popular resorts, hotels and restaurants. The same is happening now as these tourism investors cram into competitive venture capital deals for hot startups, especially early on.
Trading activity is at an all time high. The record $ 44 billion invested in start-up capital last year has already been surpassed, with more than $ 54 billion reached through September 30. And those trade values are also higher, as the median startup round size jumped to $ 10 million. in 2021 compared to $ 7 million last year. Meanwhile, a late-stage price spike tells a similar story; on deals of $ 50 million or more, the median valuation jumped to $ 800 million from $ 446 million last year.
A robust market for exits keeps this party going, with the IPO arena providing much of the celebration’s results. As 2020 drew to a close, IPOs from big names like DoorDash and Airbnb put the icing on the cake of Silicon Valley’s record year on Wall Street.
It turned out to be just a prelude to an even richer year in the first nine months of 2021. The best IPOs of Robinhood, Toast and Ginkgo Bioworks dominated the action in the third quarter. The exit value of U.S. companies this year hit a record high of more than $ 582 billion, according to PitchBook data, reflecting an increase in IPOs that were initially rich in PSPC offerings and have since cooled. But the acquisition activity remains the most important component of the overall exits.
In a market that continues to generate significant returns on investment, venture capitalists are expanding their network of sponsors as a wider range of newcomers to the asset class try to work with the tech bulls.
“The market is growing and technology is an integral part of life, so it is only natural that there is more capital for it,” said Eric Liaw, partner of IVP. “It’s not just an American business anymore, it’s global, which I think is great.”
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