Despite COVID-19’s impact, the venture capital market has never been more active.
Despite COVID-19’s impact, the venture capital market has never been more active, with record capital deployed, deal counts, and VC funds raised. Startup company valuations are growing rapidly. There has been a flight to quality driving an increased focus on later-stage pre-public companies with tangible revenue and growth. The multi-decades shift towards startups leading and driving innovation continues to fuel a hot venture market. These dynamics are challenging modest-sized venture capital funds to compete for deals, even at early stages. Many corporate venture capital groups are raising larger multi-stage funds to gain access across the full spectrum of startup maturity to access innovation that accelerates their own growth.
2020 was undeniably a banner year for the venture capital industry. U.S. venture capital funds set new records in deals closed, exits, and fundraising according to PitchBook and the National Venture Capital Association. Deal value topped $150 billion for the first time, while exit value hit a record $290 billion after a surge of companies going public via special purpose acquisition corporations in the second half of the year. Meanwhile, new venture capital funds raised $73.6 billion, surpassing the 2018 high of $68.1 billion. And in Q2 2021, global funding rose to an eye-popping record of $156.2 billion.
VCs are paying higher valuations across the spectrum of the venture capital funding lifecycle. Median early-stage pre-money valuations rapidly climbed to an all-time high of $35 million in Q4 2020. This is over double the level from just five years prior, when the median early-stage valuation barely eclipsed $15 million. The recent run-up in pre-money valuations reflects investors’ willingness to finance promising early-stage ventures with larger check sizes, as the median early-stage deal size reached an all-time high of $6.5 million in 2020. Similarly, mega-rounds ($100 million+) in 2021 have already reached an annual record high of $85.5 billion.