Investor Enthusiasm Remains High; Are We in Record Territory?

A Quarterly Wink and a Glance at Venture Capital

The first half of 2021 has seen $150 billion of venture capital (“VC”) invested in almost 7,100 deals. This is the second highest recorded deal value ever, and it is getting close to shattering the record of $164.3 billion invested in all of 2020. A new annual record for VC investment should be set sometime during Q3 2021. In addition to record numbers for deal value, the first half of 2021 has already set an annual record for exit value. For the first two quarters of 2021 there have been more than $372 billion of VC exits, which has already exceeded the record exit value of $287.5 billion realized in 2020. How long can the industry keep working at these levels? No one really knows for sure. But, for the moment, investing, exits and fundraising seem to firing on all cylinders.

Mega-Deals at Record Levels

Large deals remain the key to record growth in the VC industry. For the first half of 2021, 385 mega-deals totaling $85.5 billion were closed. This is a new annual record for mega-deals—in terms of both capital investment and deal count—and there is still six months left in the year. In fact, the mega-deal count of 198 in Q2 2021 actually exceeded the annual mega-deal counts in seven of the last 11 years.

Surge in Angel and Seed Activity

The first half of 2021 saw more than $7 billion invested in 2,773 angel and seed deals. In fact, there were 1,733 angel and seed deals completed in Q2 2021, which was a new quarterly record. Last year was a record year for angel and seed financings, with $10.9 billion invested in 5,159 total deals. The record performance of 2020 is certainly within sight, especially since the first six months of 2021 were the highest figures for angel and seed investment in any six-month period on record. With more and more companies receiving funding in the early venture stages, the future of deal-making activity looks quite strong.

VC Exit Market Continues to Look Strong

In Q2 2021, VC-backed exits continued at a high level, with 334 VC-backed exits realizing $241.3 billion in value. Q2 2021 is the fourth consecutive quarter where exit values exceeded $100 billion. The first half of 2021 saw 883 VC-backed exits totaling more than $372 billion, which surpassed the record for a full year by almost $85 billion. There were 123 exits via IPOs for the first two quarters of 2021, which included 34 SPACs. The first half of 2021 saw more SPAC transactions than all of 2020. There are still hundreds of SPACs that have raised capital and need to deploy that capital before the end of the year.

Is This the First Year That VC Fundraising Exceeds $100 Billion?

A total of 338 venture funds raised $74.1 billion of new capital during the first half of 2021. It certainly looks like fundraising in 2021 will exceed the record of $81 billion raised in 2021, and it may be the first year that the glass ceiling of $100 billion in fundraising will be exceeded. The average fund raised in 2021 is $228.7 million, which is significantly higher than the $186.5 million average raised in 2020. The strong exit market has certainly created record amounts of liquidity for limited partners who will likely continue to put money back into the VC asset class.

Outlook

The VC industry continues to invest capital, exit from deals, and fundraise at near record levels. There seems no signs of a slowdown ahead. The VC asset class has certainly continued to capture the attention of high net worth individuals and institutional investors, with one- and three-year returns exceeding most other asset classes. There certainly appears to be enough dry powder on the sidelines for the frothy VC market to continue for the foreseeable future. We will keep our eye on activity for the remainder of 2021 to see if this actually is the best year ever for VC.