The venture capital ecosystem is stronger than ever and shows no signs of slowing down, data through the third quarter of the year shows.
As of Sept. 30, global VC funding for the year was at $437.7 billion, 158% higher than 2020’s calendar total, per CB Insights. In the United States alone, $82.8 billion of capital was deployed in the third quarter, bringing the year-to-date amount up to $238.7 billion. This means the United States accounted for over half of all venture capital dollars, according to PitchBook.
Public listings in the United States generated $582.5 billion in exit value as of Sept. 30, topping the previous initial public offering record of $289 billion set in 2020 by 102%. In the United States, venture-backed listings made up more than two-thirds of all public listings in 2021 through the end of the third quarter, giving credence to venture bets paying off.
In 2021 so far, 40% of all VC funds are midsized, up from only 31% in 2020, showing the strength of the middle market.
U.S. venture capital fundraising overall has also set annual records as of the end of September. VC funds have raised a whopping $96 billion, shattering the 2020 record at $85.8 billion and bringing the average fund size up to $194.7 million (2020 also held the previous record on this metric, at $165.9 million).
In 2021 so far, 40% of all VC funds are midsized, with between $50 million and $500 million. This percentage is up from only 31% in 2020, showing the strength of the middle market. Silicon Valley holds the top spot in garnering the most VC dollars (48% of the U.S. year-to-date total). New York, the Washington/Baltimore/Arlington area, Atlanta, and Denver saw year-over-year growth between 65% and 89%, indicating dispersion of capital.
Driving the growth are corporate venture capital investors and private equity investors who are betting on early stage startups. Investments at the angel and seed level had already surpassed $11 billion by the end of the third quarter, showing that investors eager to find alpha are betting on companies that previously may have seemed too risky. As these non-traditional investors enter the VC space, according to PitchBook, they are showing less sensitivity to prices (thus driving up valuations), offering less stringent deal terms and often not requiring a board seat.
Funding for women-founded companies
Also notable in the VC landscape is the role women play in receiving funding dollars or writing checks as general partners, a topic that has drawn more attention as companies, funds and the public increasingly prioritize issues of equity and diversity.
It has been well reported that the pandemic negatively affected women in the workplace during 2020, and the VC space reflected this as well. In 2020, only 2.2% of all of the dollars invested in startups went to companies whose founders were all women. While this percentage dipped to 2% in 2021, there are some bright spots in terms of deal value and deal count in 2021 for female founders in tech, health care and fintech. According to a recent report by PitchBook, deal value for female-founded companies in tech and health care as of Sept. 30 was already up 82.9% and 106.3%, respectively, compared to 2020. In fintech, female-founded companies have raised over $6 billion, which is three times the amount raised in 2020.
Moreover, total investment in female-founded companies rose from $23.3 billion in all of 2020 to $39.4 billion in 2021 through September. When looking at investment in companies with all-female founders, there is a healthy increase from 2020 when that figure stood at $3.5 billion for the entire year compared to $4.6 billion as of Q3 this year.
There is no doubt that investment in female-founded companies is still lagging, but the modest increase in female general partners as a percentage of all GPs is an indication of improvement. As of the end of September this year, approximately 15.4% of GPs were women, according to PitchBook. This is up from 12% in 2019.
Venture capital has had a strong showing so far through 2021, but some uncertainties could still affect this landscape. These are the usual suspects related to possible tax increases (whether in the form of a capital gains rate hike, changes to the carried interest holding period, or deductions related to qualified small business stock) or Fed policy changes that could affect interest rates—especially now that Federal Reserve Governor Lael Brainard has been reported as a potential replacement for Fed Chair Jerome Powell. However, the speed at which Washington is moving is unlikely to affect the VC ecosystem this side of 2021.
The recently passed hard infrastructure bill will also provide some upside to the VC community, especially the $65 billion slated to improve broadband infrastructure across the country and the $7.5 billion to help build out the national network of electric vehicle chargers. Other provisions of the bill that support hard infrastructure projects, making infrastructure resilient against the effects of climate change and cyberattacks could also present opportunities to VC players.
It’s worth noting that this bill didn’t require raising taxes, but the second part of the bill—which addresses more social infrastructure projects—could revive discussion on the topic.