Venture Capital Activity Is Definitely in Record Territory

A Quarterly Wink and a Glance at Venture Capital

Q3 2021 was another outstanding quarter for VC investment, with almost $83 billion invested in more than 3,500 transactions. For the first nine months of 2021, VC investment totaled $238.7 billion in 12,837 deals. VC investment over nine months this year has eclipsed the record of $166.4 billion set in all of 2020 by more than 43%. Despite mixed economic signals here and abroad, similar records are about to be broken or have already been exceeded in terms of mega-deals, exit activity and fundraising. Despite recent developments in Washington, rising inflation, COVID-19 and the complicated U.S./China relationship, the VC markets continue to surprise all and exhibit incredible resiliency.

Exit Values Already Double Prior Annual Record

VC-backed exit values were more than $187 billion in Q3 2021, and this contributed to the YTD total exit values of $583 billion. In comparison, the prior record for VC-backed exit values was achieved in 2020 and the record was a mere $289 billion. In fact, exit value in Q3 2021 alone was greater than the full-year exit values in every year during the last decade, except for 2019 and 2020. The IPO and SPAC markets contributed to this exit value record. More than 88% of the total exit value was due to public markets activity. A total of 93 IPOs were completed in Q3 2021, and this brought the YTD total to 221 IPOs. For the first three quarters of 2021, 413 SPACs raised more than $109 billion. Activity in reverse mergers is on the rise as more SPACs are reaching maturity.

Fundraising Positively Impacted by High Exit Values

High exit values are allowing limited partners to commit capital into new funds at record levels. A total of 161 new VC funds were raised in Q3 2021. YTD, 526 VC funds have raised $96 billion, which eclipsed last year’s record of $85.3 billion. Barring a complete meltdown in Q4, 2021 will be the first year that the venture capital industry has raised more than $100 billion of new LP capital. This is a record that the VC industry can be very proud of, and it is a level that was unthinkable just a few years ago.

Mega Deals Still the Driving Force in VC

During Q3 2021, $49.5 billion was invested in deals of $100 million or more. For the first nine months of 2021, mega deals accounted for $136.5 billion, or 57%, of total VC investment. Lat year was a record year for mega deals, with $76.7 billion invested. The VC industry has surpassed this annual record by 78% in only nine months. To take this a step further, mega deals of more than $1 billion are also beginning to gain attention. For the first three quarters of 2021, a record 12 deals greater than $1 billion have impacted deal sizes and valuations.

Angel and Seed, Early Stage and Late Stage Remain Frothy

Through the first three quarters of 2021, $11 billion has been invested in almost 5,000 angel and seed-stage transactions. Angel and seed deal counts have increased in each quarter since Q2 2020. So far in 2021, the average angel and seed-stage deal size is at $3.8 million, which represents a 20% increase from the record high achieved in 2020.

The early-stage market continued to be strong in Q3 2021. Q3 saw almost $20 billion invested in almost 1,500 deals. For the first three quarters of 2021, early-stage activity totaled almost $55 billion invested in approximately 4,000 deals. YTD activity has already surpassed the record established in 2019 of $43.3 billion invested in 3,811 transactions.

For the first nine months of 2021, late-stage VC accounted for $172.6 billion invested in 3,865 deals. This already exceeded the prior record in 2020 of $111 billion invested in 3,407 deals. The demand for late-stage opportunities definitely exceeds the supply.

Outlook

For VC, 2021 can already be considered a record year in so many categories, and there is still one quarter remaining. There are some possible speed bumps in the road with the economy facing continued supply chain shortages, worker shortages, inflation at a 30-year high and possible changes in the tax code before the end of the year. We are also still dealing with COVID-19. I still remain bullish about the short-term performance of the VC industry, but the future performance may be adversely impacted by several macroeconomic factors. Stay tuned for the Q4 2021 VC year in review.