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PitchBook Publishes 2021 US Venture Capital Outlook Predicting Record Nontraditional Investor Participation

December 14, 2020



SEATTLE, Dec. 14, 2020 - PitchBook, the premier data provider for the private and public equity markets, today released its 2021 US Venture Capital Outlook report, which details predictions for venture capital (VC) activity and performance in 2021. Following a tumultuous year and several macro headwinds, the VC industry is undergoing a period of transformation and innovation, which has only been accelerated by the coronavirus pandemic. There has been a concerted effort to look beyond traditional VC hubs and develop new ways to capitalize startups. Additionally, the types of securities and investment vehicles are changing as the popularity of non-dilutive financing options surged amid the pandemic. The continued tendency of companies to stay private longer has led established VCs to not only fund massive private rounds but also adapt strategies as they transition to public markets via special purpose acquisition companies (SPACs). Nontraditional investors have also evolved their strategies in the VC space and now represent a main driver in the market. These are broadly encouraging changes for the VC industry and necessary to foster continued expansion in 2021.

“As we head into the new year, there are many variables on the table including the COVID-19 pandemic, a new administration in the US with numerous policy proposals spanning taxes, immigration, trade and an array of other issues that directly affect both VC investors and companies,” said James Gelfer, senior strategist at PitchBook. “While macro uncertainty remains high, a light is beginning to appear at the end of the tunnel, and we see continued opportunity for innovation as investors, companies and regulators have seemingly embraced the new landscape and committed to increasing access to capital.”

Click here to download the full report and see in-depth data and analyst rationale behind each of the predictions below.

2021 Venture Capital Outlook

 
  • Biotech & pharma VC deal activity will likely exceed $20 billion for the second consecutive year.
    Ever-growing capital commitments from LPs looking to break into the biopharma space, coupled with the recycling of profits and liquidity from 2020’s IPO market will fuel dealmaking in 2021 to near-record levels.
  • Established managers will increase proportion of overall VC fundraising to above 75% for the first time since 2012. 
    Established managers have found success raising outsized follow-on vehicles, while emerging managers have struggled to raise smaller funds, a discrepancy expected to widen further in 2021 as LPs recycle ongoing distributions generated by the strong exits from these established managers into follow-on funds.
  • Number of SPAC IPOs will decline YoY in 2021, and fewer than 30% of 2020 SPACs will close an acquisition.
    The deluge of SPAC IPOs in 2020 saw a near quadrupling of IPO count in the space, but for most investors, the establishment of a SPAC program in the current environment was likely driven more by opportunism in a bull market than a measured inception of an evergreen strategy.
  • More VC-backed exits over $1 billion will occur via direct listings rather than SPAC listings in 2021.
    Following the SECs approval of NYSE direct listings to include a primary capital raise concurrent with the first trade, more companies are expected to take advantage of the benefits of a direct listing, especially larger technology startups.
  • Proportion of late-stage VC deal value relative to IPO proceeds will continue to compress in 2021.
    Late-stage VC investment reached a new high in 2020 and this flood of capital to the largest startups is expected to continue and set a record in 2021 given the continued expansion of nontraditional participation in VC. 2021 will also be a strong year for IPOs based on recent filings and indications from market participants, along with a seemingly open IPO window.
  • Bay Area will fall below 20% of US deal count for first time.
    Despite Silicon Valley’s continued dominance in VC and rising yearly deal counts, its proportion of total VC deal count in the US has softened, falling nearly each year since 2006. The COVID-19 pandemic and subsequent exodus from San Francisco will only exacerbate this trend.
  • Nontraditionals will lead a record 1,600 early- and late-stage VC deals as venture becomes more ingrained in their investment strategy.
    Investing in VC has become much more ingrained within nontraditional investor strategies and as these firms grow even more accustomed to and comfortable with these deals, their penchant for leading venture rounds will continue to grow.
  • Venture debt issuance will continue a string of record years, surpassing 2,600 deals and $25 billion originated for the fourth consecutive year.
    As startups continue to raise more capital in private markets, venture debt has provided a cheaper and non-dilutive option to equity. By year-end, the venture debt total will almost assuredly surpass $20 billion for the third consecutive year and 2021 will likely mark the fourth consecutive year to surpass $20 billion in venture debt value.


To download the full report, click here.

About PitchBook
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York and London and serves more than 45,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.

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