During the first quarter of the year we reviewed some of the structural changes occurring in the venture capital ecosystem. Large movements in both funding sources and geographical location seem to indicate that venture capital was in a state of transition. This transition was highlighted by the growing confidence in the viability of emerging markets, a surge in late-stage private rounds led by traditionally public investors, and a geographic shift in large funding rounds traditionally concentrated around China and the United States. Looking at the second quarter, we continue to see excitement in private markets across all stages of growth. Here are some of the most notable developments of the quarter.
Late-stage Funding Accelerates – When Preparation Meets Opportunity
2020 broke all time highs in late-stage investments (Series C or later) with companies raising an aggregate total of $109.8B compared to 2019 which raised a total of $85.8B.¹ 2021 has followed this trend and during the first half of the year investors have already matched the capital deployed in 2020 ($109.4B). While the beginning of 2020 had the world scrambling to find a foothold, tech sectors were seeing record capital inflows. Currently, B2B Tech, B2C Tech, Biotech, and Fintech are all on track to shatter their previous annual investment totals. In fact, Fintech already surpassed 2020’s all-time high of $21.3B in just the first half of the year raising $24.2B in 2021. Each of these industries saw mass acceleration due to their positioning during the pandemic.
Early-stage VC Surpasses Expectations – Raising the Bar
As we discussed in Q1 2021, the influx of traditionally public investors financing private companies from the boom of special purpose acquisition companies (SPACs) and Private Investment in Public Equities (PIPEs) has led to a large increase in available capital. While we previously focused on the impacts of this influx on late-stage investment, early-stage rounds have been surging with activity. Analysis reveals that the increasing amounts of early-stage investments may be indicative of investors’ growing ability to accurately forecast the value of companies raising their first rounds.²
Early-stage startups in the first half of the year have already surpassed $34B in deal values. For perspective, 2018 to 2020 were already impressive years for early-stage companies, breaking through the $40B mark in annual investment capital. At this rate, 2021’s early-stage rounds may surpass $65B in annual deal values.
Record Breaking Exits – Going out with a Bang
2021 has also been a healthy year for venture exits yielding a record breaking $372.2B. The bulk of this value comes from the 123 public listings that have closed this year, including 34 reverse mergers resulting from special purpose acquisition companies (SPACs). The year is also on track to break 2019’s record of 1,173 exit deals with an estimated 883 deals occurring in just the first six months of 2021.
As the world begins to contemplate what a post COVID-19 world entails there appear to be several challenges at the forefront of our ecosystem. Areas of greatest concern surround the work from home employment model and what that will look like post pandemic and addressing new consumers preferences/habits that have changed significantly. These challenges lay the grounds for continued opportunities for the startup community but it appears that those opportunities will have access to large capital pools.
If the ecosystem continues to operate as it has in the first half of the year, startups will be well positioned throughout their growth cycle. While there is a possibility that inflation fears or a slowdown in recovery efforts may sway investors into becoming more conservative, the bottom line is that the trends seen in this first half of 2021 indicate a healthy funding environment.
For entrepreneurship, this means that more founders will have the opportunities to grow and reach new heights at unprecedented rates. We look forward to continuing to support entrepreneurs in making the most of these newfound opportunities.
¹Pitchbook-NVCA Venture Monitor Q2 2021. p. 11. “Late-stage VC”. https://pitchbook.com/news/reports/q2-2021-pitchbook-nvca-venture-monitor
²Pitchbook-NVCA Venture Monitor Q2 2021. p. 9 “Early-stage VC”. https://pitchbook.com/news/reports/q2-2021-pitchbook-nvca-venture-monitor
This blog is an update to our previous article “The State of Venture Capital in 2021”. Additional reporting provided by Endeavor staff members Derek Barnett and Eric Marroquin.