Who Would Have Thought 2020 Would Be a Record Year?

A Quarterly Wink and a Glance at Venture Capital

Calling the venture capital space resilient might be an understatement. With the backdrop of COVID-19 for the last three quarters of 2020, the U.S. venture capital sector achieved a record year in terms of VC investment, fundraising and number of mega deals. It was also the second highest year on record for VC-backed exit values. In 2020, venture capital funds invested $156 billion in more than 12,200 deals, achieved exit values of $290 billion, raised $74 billion in new capital, and closed on 321 deals of greater than $100 million.

Going Public Still a Viable Option for VC-Backed Exits

In 2020, IPOs raised $167 billion, which erased the previous full-year record of $108 billion raised in 1999. It shows that institutional investors still have a demand for growth companies like Airbnb and DoorDash. The frothy IPO market was certainly aided by the popularity of special-purpose acquisition companies (“SPACs”). In 2020, 250 SPACs raised $75 billion, which compares quite favorably to 2019 when 53 SPACs raised $11 billion.

Mega Deals and Late-Stage Deals Still Lead the Way

More mature startups continue to be the most attractive part of the venture capital space. Late-stage companies represented 29% of the total number of VC deals closed in 2020 and almost 67% of the deal value in 2020. In 2020, 321 mega deals were completed for a total of $71 billion. This represents quite an increase from the 242 mega deals closed in 2019. Another interesting comparison is that 10 years ago, in 2011, only 46 mega deals actually closed.

Angel, Seed and Early-Stage VC on Par with Recent Years

Even though the pandemic caused many VCs to focus on providing capital to existing portfolio companies, angel and seed stage companies raised $10.1 billion in 2020, which was equal to the amounts raised in both 2019 and 2018. Digital deal making certainly worked as VCs embraced virtual meetings in the absence of in-person meetings and due diligence. Early-stage VC finished 2020 quite strong, with more than $11 billion invested in Q4. Early-stage companies received $42 billion in 2020, which does fall a little short of the record years of $47 billion and $44 billion achieved in 2019 and 2018, respectively.

Venture Capital Fundraising in 2020 Supports a Strong Asset Class

In 2020, venture capital firms raised $74 billion for 321 funds. This eclipsed the record of $68 billion raised in 2018 and was significantly higher than the $56 billion raised in 2019. The average size of a VC fund increased to $236 million. This spike in fundraising was the result of significant distributions to LPs from exit activity, near-zero interest rates, and LPs’ strong desire to increase their allocation to venture capital.

Outlook

The performance in the venture capital sector in 2020 certainly exceeded my expectations. I could never have predicted back in March/April that the industry would have a record year for deal value and capital raised. COVID-19 has caused a renewed and perhaps prolonged interest for investors in the areas of vaccines and antivirals, digital health, e-commerce and virtual work environment technologies. With savvy entrepreneurs continuing to build great new technologies in response to the permanent changes caused by the pandemic, I’m extremely bullish on VC investment in 2021. It will be interesting to see how venture capitalists begin to deploy the $152 billion in dry powder sitting on the sidelines.