Q4 VC Investment Caps-Off Some Surprises
February 04, 2021
In this episode, Alan Wink, Managing Director for EisnerAmper’s Capital Markets, looks at the pleasantly surprising VC numbers for 2020, how mega deals fared and what he has on his radar for IPOs and capital markets in 2021.
DP: Good, good. So, tell us, in the midst of a variety of economic, social, public health and political upheaval, VC Investments stayed rather resilient. Why don't you tell us about that?
AW: Dave, you know, if we look back to last March or April, I never thought we'd be having this conversation about what's going on in venture capital investing. I think 2020 exceeded everybody's expectation. It exceeded the rosiest forecast we could possibly think. It was a record year on a number of fronts. And this happened in the middle of a pandemic, the worst pandemic we've seen in a hundred years. It was a record year for venture capital investment, $156 billion deployed. It was a record year for fundraising, about $74 billion that was raised last year.
It was a record year for mega deals or deals over a hundred million dollars, 321 hundred plus million dollar deals were completed last year. And it was the second best year in terms of venture capital backed exits. So all in all, it was a phenomenal year in spite of everything that happened in our country last year, everything had happened around the world.
DP: And what did you attribute that to?
AW: I think venture capital embraced the virtual work environment. They realized they had to deploy capital. That's their business. They became comfortable doing deals in a virtual environment, doing deals, doing due diligence virtually, and also they invested a lot of money in their existing portfolio companies. They were certainly attracted to later stage transactions. I think 67% of the dollars invested by VCs last year were in later stage deals. So they did embrace a larger and more mature companies.
DP:Okay. You mentioned the mega deal. Tell us a little bit more about those.
AW:Last year we saw 321 deals over a hundred million dollars. VCs continue to embrace investing in larger and larger companies. They continue to embrace writing larger checks, and maybe it's out of necessity, because they have raised considerable sums of money over the last three to five years, and that money has to be deployed. And it's a lot easier for the big venture capital funds, the billion dollar plus funds to write large checks than it is to write many, many smaller checks. So I think they continue to find large companies that they believe are positioned to grow, and large companies that they hope will be able to embrace the strong IPO market that we're seeing and also the strong SPAC market that we're seeing.
DP:Okay. Looking ahead a little bit to 2021, you mentioned IPO's. What big IPO's do you have on your radar for this year?
Alan Wink: Well, there's quite a few and I'm assuming that the frothy IPO market is going to continue into next year, and it's happening in all different sectors. Of course, it's around healthcare, anything with vaccines or digital health, a lot around e-commerce and Bitcoin and also technologies that are impacting the virtual work environment. To name a couple of companies that I've been tracking that I think will go public.
Probably in the first half of next year, a company like Coinbase, which is the largest cryptocurrency company in the United States, a company like Petco, not a big tech company, but taking advantage of people's love for pets and this great demand to have pets as a result of COVID. Companies like Robinhood, another online brokerage firm. Oscar Health that's trying to revolutionize healthcare insurance. That's a small sprinkling of companies that I think are going to have a pretty nice IPO's this year.
DP: Okay. We'll keep our eye on those. Will investors be heading for the exits this year?
AW: I think so. I mean, valuations are still pretty frothy, depending upon the age of the fund and they need to find liquidity, I think they will be taking advantage of the vibrant IPO market.
DP:Okay. Now, with the new administration in place, what do you think it means for the VC markets? For example, do you think we're going to see increased regulation?
AW:Yeah. I think if you look at what the reporters have been saying about the Biden administration, I think President Biden certainly will push for aggressive regulation of financial services. It's quite evident on some of the people that some of his cabinet appointments and some of his senior appointments. I also think for the VC industry, it could be good, even if you look at the news this morning, and I think President Biden signed several bills yesterday regarding environmental regulation and his focus on the environment. So I think VC funds that are vesting in environmental space are focusing on renewable energy. I think you're going to do very, very well in the future, because I think that's where the president is putting a lot of his efforts.
DP: Okay. Now, you have an interesting story about one of the president's high-level appointments. Tell us about it.
AW:Yes. When you talk about regulation, I might even quote unquote, be in the know a little bit more. My wife and I actually went on a bike trip three years ago to Hawaii. We actually cycled the large Island of Hawaii, and one of the people on the trip and there were only 15 of us, was actually Gary Gensler, who President Biden has appointed to run the SEC. And I spent a week cycling with Gary and talking to Gary about business. He's a great guy. I'm kind of interested to see how he attacks the SEC. So it's going to be an interesting time. I feel like I'm in the inner circle a little bit, not really, but a little bit.
DP: What was your take on Gary? Is the SEC in good hands?
AW: Absolutely. Gary, in the Obama administration, actually ran the Commodities Futures Trading Commission, and he was really thought of as an aggressive regulator and beyond that, he was actually the youngest partner in Goldman Sachs history before he went into government. So I think President Biden made a very, very good selection.
DP: Well, that's good to hear. Well, Alan, as always thanks for your expertise and your insight and perhaps your future, even deeper insight.
AW: Thanks Dave. Stay well, everybody.
DP:And thank you for listening to EisnerAmper's podcast series. Visit eisneramper.com for more information on this and a host of other topics and join us for our next podcast, when we get down to business.