Venture capitalists went hard in 2021.
Data collected from a number of sources indicates that last year set venture capital records around the world. From dollars invested to deal volume, sectors and geographies posted their strongest performance and excelled on essentially every continent.
Today’s startup boom, from a venture capital perspective, is a wide-ranging and incredibly expensive enterprise.
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With a history of venture capital activity setting records in recent years, you may not feel like last year was all too special. It was. The total value of capital disbursed, and the pace at which those funds were put to work, is different than prior years and preceding eras.
The good news from that fact is that we’re seeing venture capital tallies rise across more markets than we did in previous startup boom cycles. This means that more founders in more places are raising capital, even if traditional hot spots like Silicon Valley and the larger U.S. market retain much of their historical heft.
Next week, The Exchange will dig into sectors, trends and particular regions of the world. Today, we’re talking big, high-level numbers and just how much busier last year was for the venture set. With data from CB Insights, Crunchbase News and a first look from PitchBook regarding a coming data set, we have plenty of numbers to parse.
So take a walk with us through what could be the most insane and busy year we’ll ever see for venture capitalists. (Unless, of course, 2022 manages to out-crazy last year. Don’t write off that possibility entirely; we’re off to a busy start.)
A record year ‘round the world
The top-line figures are astounding.
CB Insights reports that venture investment reached $621 billion in 2021, up 111% from 2020 levels. Recall that 2020 was effectively tied with 2018 as the largest year for global venture investment — until 2021 came and took its crown.
Crunchbase News’ data landed in the vicinity, finding $643 billion worth of global venture investment last year, up 92% year on year. Regardless of which number we choose, it’s clear that well north of half a trillion dollars was invested into high-growth private companies last year – a rough doubling of what the same asset class managed in 2020.
Last year’s record dollar volumes in venture capital were met with record deal volume. But 2021 global venture deal volume (34,647 deals, per CB Insights), was up a more modest 31%, compared to the doubling of dollar value that those deals represented. In practice, the discrepancy between growth in dollars and growth in deal volume last year can be explained with a single phrase: mega-rounds.
Yes, the venture investments worth $100 million or more had a simply fabulous 2021 in numerical terms. There were 1,556 mega-rounds last year, per CB Insights, up 147% from 2020’s prior all-time high of 630. In a similar vein, Crunchbase News reports that startups at Series C or later raised $413 billion in 2021, “$196 billion more than in the previous year.” That’s quite the jump.
The result of the wave of huge deals was rapid-fire unicorn formation. Or births, we suppose. Regardless of which phrase you prefer, a metric pile of new unicorns came into being last year. Crunchbase News pegs the pace at “more than 10 each week” last year. CB Insights notes that the total number of unicorns grew from 569 at the end of 2020 to 959 at the end of 2021, or growth of around 69% in private companies worth $1 billion or more in a single year.
The discrepancy between the pace at which venture dollars grew last year and the slower rate at which deal volume rose led to other results, including more expensive startup prices. CB Insights notes that median early-stage startup valuations grew from $13 million in 2015 to $18 million in 2020 to $28 million last year, or a gain of around 56% in a single year. Middle-stage rounds, per the same data set, grew from a median valuation of $79 million in 2015 to $147 million in 2020 to $324 million last year, or a gain of around 120%.
And as you already guessed, late-stage valuations also ticked up last year on a median basis. For the first time ever, the median late-stage round topped the $1 billion mark, CB Insights reports, up from $524 million in 2020 and just $156 million back in 2015.
Startups have never raised more capital, more quickly, in so many deals. And venture capitalists have never paid more dearly for startup equity than they are today.
Global trends
We always like to break down data by region, but it might be tempting to skip that step. After all, total dollars reached records in the U.S., which was by far the leading region by that count.
CB Insights and PitchBook-NVCA have slightly different tallies for how much went into U.S. startups in 2021 – respectively $311 billion and $329.8 billion. But the gist remains unchanged — this is a record. It nearly doubles 2020 figures, and not because 2020 was a bad year. In fact, that was the previous record, PitchBook noted.
One way to sum up 2021 globally would be to say that the U.S. is far ahead when it comes to pretty much every single metric. Dollar totals, check. Mega-rounds, check. Unicorn births, check. Unicorn total, check. But the full picture is more complex and more compelling than this.
Asia does beat other geographies on a non-negligible data point: total deal count. According to CB Insights, the region accounted for 36% of total deal share. With 12,485 deals, it overcame the U.S. in that respect “for the first time in seven years of tracking.” Dollar totals are still inferior to the U.S., but also huge and on the rise: $176 billion, an 89% year-on-year increase.
Half of Asia’s deals happened in China, which is also worth noting because it was far from a foregone conclusion a few weeks ago. This comes in addition to another data point that caught our attention: According to research firm Preqin, venture capital investments in China reached a record in 2021 at $130.6 billion, up from $86.7 billion in 2020.
Another way to look at the data would be to notice that the same trends in the U.S. happened pretty much everywhere else. New unicorns are being minted all over the place. Funding tallies are up. Mega-rounds are up. Median deal size is up, even more so in Asia ($6 million) than in the U.S. ($5 million) – but also in Canada ($3 million), Latin America ($2 million), and the rest of the world ($2 million).
Last year’s data is so consistent across the world that there just isn’t any real outlier. If anything, it is becoming more consistent, with some regional tallies catching up by growing faster than the U.S. Let’s hear it from Crunchbase:
“Venture funding to Latin America’s startups grew the most in 2021, with close to $19.6 billion invested in the region, or more than 300 percent year-over-year growth. Funding to European startups grew by more than 150 percent year over year, with close to $116 billion invested. The largest regions for funding remain North America, with $330 billion invested (91 percent growth year over year), and Asia with $165 billion invested (50 percent growth year over year).”
Will we see an “even more robust U.S. venture market in 2022”? According to PitchBook, there are signals in that direction, such as the amount of funds flowing into venture capital, and the fact that most rounds in 2021 (55%) were early-stage deals. If the U.S. sets the tone, global records might be broken again.
Fintech, cybersecurity
Picking a few categories to take closer looks at, let’s chat fintech and cybersecurity.
On the fintech front, the data is perhaps even more incredible than what we saw from the global venture market. CB Insights reports that global fintech funding came to $131.5 billion in 2021, up from $49 billion in 2020 and miles above fintech’s all-time high set in 2018 ($53.3 billion). And as we saw with broader figures, deal volume for the sector also rose, from roughly 3,500 rounds per year from 2018 through 2020 to 4,969 in 2021.
What is notable about the fintech boom in 2021 is that it was not driven by any single event. Instead, after bouncing between $10 billion and $13 billion per quarter during much of 2018, 2019 and 2020, venture investments into fintech startups rose to more than $30 billion per quarter in the final three periods of 2021.
Cybersecurity is a slightly less extreme case of the boom times, but one worth considering given that some companies in the sector that have gone public have done well (Crowdstrike, to pick an example) and M&A (Proofpoint, to pick an example) in the space is pretty darn active.
As you already expect, cybersecurity investments in the venture realm shot higher last year. Crunchbase News reports that after resting between $8 billion and $9 billion in 2019 and 2020, venture dollars into cybersecurity-focused private companies shot to $21.8 billion last year.
That all-time record dollar figure, the publication notes, did come with a slight decline in total rounds recorded. So, we can infer that cybersecurity investment went a little bit later-stage last year than some other sectors. Still, the smashing figures underscore how wide the boom in capital access was last year. Just simply bonkers.
So what?
The takeaway is not merely that there are more dollars and deals to keep track of, or that more startups than ever are raising more money than ever. Or that venture capitalists have thrown away much of their own rulebook to adapt to a reforged private-market investing environment.
No, the takeaway is that the rising wager made globally on startup growth is adding risk to the private markets at a pace that we have not seen before. Not ever. How is risk being formed? By funding early, middle and late-stage companies at their current pace and scale, venture investors are betting that exit volumes will accelerate enough in coming quarters and years to clear the decks — or to convert enough of the illiquid value generated by private companies into liquid, public stocks or other material exits.
The growth in unicorns is a sign of the times, and an unsolved question. That so much capital is being disbursed globally implies an upcoming unicorn liquidity boom. Or at least that is what the venture set appears to anticipate. Let’s see if they are right.