Venture capital had a record-breaking 2020: $150 billion in deals, all-time highs for fundraising and results

Nizar Tarhuni of PitchBook

Summary List Placement

Despite cancelled flights, closed offices, a spring full of mass layoffs, rolling lockdowns, and the heartbreaking death toll from COVID-19, VCs still managed to break records in 2020.

For the first time ever, the venture capital industry invested over $150 billion in a year, according to a report by PitchBook and the National Venture Capital Association (NVCA). 

In a year of uncertainty, investors wanted sure bets and leaned on existing companies in their portfolios. A whopping $100 billion was invested in late-stage companies, making it the third year in a row that late-stage deals have surged.

Cameron Stanfill, an analyst at PitchBook, predicted this trend in a panel earlier this year, saying VCs would prioritize late-stage companies to “extend their runway” and “make sure they’re going to come through this crisis stronger than ever.”

As investors doubled-down on established startups, they managed to break another record, in results: 321 mega-deals were closed in 2020. For context, only 242 mega-deals — defined as a merger or acquisition valued at $5 billion or more —were closed in 2019. 

The dark shadow of the year was felt mostly by early stage companies. While older companies thrived, newer entrepreneurs struggled. First-time financing fell sharply and almost three-fourths of total capital raised went to established funds. The report described limited partners as “seemingly unwilling to take risks on unproven investors and shying away from new relationships.” 

There’s already reason to be optimistic that 2021 will be as good or better for startups and their financiers. VCs also had a record-breaking year in their own fundraising efforts.

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“VC firms closed a record 44 mega-funds—vehicles totaling $500 million or more—in 2020, which was nearly double the 24 closed in 2019,” the report said.

And that means the VC industry is heading into 2021 with $152 billion in “dry powder,” a financial term for unallocated cash waiting to be invested.

Michael Chow, NCVA Director of Research, told Insider this is great news for everyone. “Venture capital’s record-breaking year in 2020 is great news not only for the industry, but also the broader economy,” he said.

“VC-backed companies play a critical role in U.S. job creation, and the strong position the industry finds itself in leading into 2021, with ample dry powder to deploy and robust public markets, will accelerate the recovery from the pandemic-induced downturn.”

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Source:: Businessinsider – Tech


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