SEATTLE, October 13, 2020 – Though external economic headwinds due to the coronavirus pandemic persisted in the third quarter, venture capital (VC) exit activity saw a major uptick, achieving the second highest exit values on record, according to the PitchBook-NVCA Venture Monitor, the authoritative quarterly report on venture capital activity in the entrepreneurial ecosystem jointly produced by PitchBook and the National Venture Capital Association (NVCA), with support from Silicon Valley Bank and Certent. The positive momentum from the stock market in recent months, particularly the performance of new listings, has encouraged companies to move forward with IPOs if they were prepared and considering that exit route. On the dealmaking side, this report includes PitchBook’s proprietary deal estimation methodology for the first time, which will be included in all future reports, to better account for investment data reported after the quarterly publication date. Investors have continued to consolidate capital into their most valuable and mature businesses leading to a consistently high volume of VC mega-deals. The explosion of this slice of the VC ecosystem has been one of the most drastic changes over the last 10 years and has actually ramped up throughout the COVID-19 pandemic. One big reason behind the increase is that nontraditional involvement, including sovereign wealth funds, mutual funds, and hedge funds, has remained in play despite the economic slowdown. Fundraising activity remained strong in the third quarter, putting 2020 on track to set a record high for total capital raised. As the COVID-19 pandemic progressed, fund managers with established LP relationships and a record of strong fund performance have not experienced many hiccups when it comes to raising new funds.
To download the full report and data packs, please click here. PitchBook and NVCA will also be hosting a webinar in partnership with Silicon Valley Bank and Certent on October 29, 2020 from 10:00 – 11:00 am PDT. Please click here to register.
“Despite continued uncertainty throughout the year, the rebound in public markets has given investors’ confidence. LPs are recommitting with proven GPs raising successor VC funds,” said John Gabbert, founder and CEO of PitchBook. “As investors seek growth opportunities in a low-rate environment, the growth potential of the venture strategy continues to entice both traditional LPs and nontraditional investors. Additionally, we saw the return of large IPOs during the third quarter and expect more in the coming months as VC-backed companies look to capitalize while the IPO window remains open.”
“The consolidation of capital continues toward larger, later stage companies and established VC funds. While both of these trends are potential signs of concern for the long-term health of the VC lifecycle, overall the ecosystem has shown strong resiliency in the past six months,” said Bobby Franklin, President & CEO of NVCA. “Many types of tech and life science companies have seen noteworthy growth during the pandemic, and new innovations spurred by startups are being rapidly adopted across the country. There are still many uncertainties on the horizon, including the upcoming presidential election and continued impacts from the COVID-19 pandemic, but the strength of the ecosystem is encouraging to see, especially since VC and startups will be crucial to the economy’s recovery.”
Following a tepid first half of the year for exit activity, the third quarter saw a massive uptick with $103.9 billion raised across 185 exits, representing a quarter-on-quarter increase of 292.5% and 7.6%, respectively. Several large IPOs closed during Q3 and pushed exit value to its second-highest quarterly total behind only Q2 2019 (the quarter Lyft and Uber debuted for context), which seemed impossible six months ago when the COVID-19 pandemic first emerged. The public listings of Snowflake, Palantir, Asana and Unity made up 64.8% of Q3 2020’s total exit value, highlighting the importance of outlier exits. Special purpose acquisition companies (SPACs) continue to hold the attention of many private market participants with steady issuance of new SPACs and newly announced SPAC acquisitions. The IPO of Pershing Square’s SPAC, which raised the largest ever SPAC at $4.0 billion, occurred in Q3. Another development this quarter was the approval by the SEC to allow direct listings on the NYSE to include primary shares, now allowing a direct listing to serve as a capital raising event. Given that the lack of new funds was essentially the only downside of the direct listing route compared to an IPO or SPAC listing, it’s expected more companies will pursue this pathway now that the barrier may be eliminated.
VC dealmaking has remained resilient throughout the pandemic with $37.8 billion invested across 2,288 deals in the third quarter. While the seed market continued its sluggish pace in Q3, angel investments have remained resilient, bringing the number of deals at the angel and seed stage so far in 2020 to be roughly in line with the same time frame in 2019. After a lackluster Q2, early-stage VC deal activity showed signs of rebounding in Q3 as investors at this stage are becoming more comfortable investing in the “new normal”. The late stage continued its resilience with 662 deals closed totaling $26.6 billion, bringing the yearly total to $78.2 billion. Amid uncertainty this year, investors have consolidated capital in their portfolio companies at the late stage, resulting in the ongoing trend driving deal sizes higher. Currently, more than 30.5% of late-stage VC deals are over $25 million and drive 75.5% of the total value at the stage. VC mega-deals ($100 million+) have been a consistent source driving the aggregate deal value and average deal sizes to new heights. 223 deals in this size bucket have closed this year, putting 2020 on pace to easily surpass 2019 for the most mega-deals in one year. Nontraditional investors remained active in venture, participating in 73.5% of the US venture deal value and 94.8% of completed VC mega-deals.
By the end of the quarter, fundraising activity remained robust with a total of $56.6 billion raised across 228 vehicles, setting 2020 on pace to establish a record high for total capital raised. Fundraising in the first three quarters of 2020 has already surpassed 2019’s full yearly fundraising activity of $54.9 billion. The robust fundraising figures are in part due to 35 VC mega-funds ($500 million+), representing an all-time high and 15.9% of total funds raised so far in 2020. Some notable mega-funds closing in the third quarter include Amazon’s Climate Pledge Fund of $2.0 billion, Greylock Partners’ Fund XVI of $1.0 billion, and Meritech Capital Partners’ Fund VII of $817.9 million. On the flipside, raising a first-time fund in the current climate is a herculean task. Only $1.9 billion has been raised across 30 first time funds through Q3, representing a record low of 3.3% of total capital raised. There are currently 77 venture funds that opened in Q3 and 99 funds that opened in Q2 that have yet to close and have the potential to be oversubscribed given the robustness of the fundraising landscape and LPs’ willingness to include the VC asset class in overall strategy.
The full report will include the following components:
To download the full report, click here.
- Executive summary
- NVCA policy highlights
- Angel, seed & first financings
- Early-stage VC
- Late-stage VC
- Deals by region
- Deals by sector
- SVB: Healthcare investing hits new highs
- Female founders
- Nontraditional investors
- Certent: Evolving capital and compensation structures in COVID-19 era
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About National Venture Capital Association
The National Venture Capital Association (NVCA) empowers the next generation of American companies that will fuel the economy of tomorrow. As the voice of the US venture capital and startup community, NVCA advocates for public policy that supports the American entrepreneurial ecosystem. Serving the venture community as the preeminent trade association, NVCA arms the venture community for success, serving as the leading resource for venture capital data, practical education, peer-led initiatives, and networking. For more information about NVCA, please visit www.nvca.org.
Katherine Andersen, Head of Life Science & Healthcare Relationship Banking at Silicon Valley Bank
"The public markets have been on fire for the past eight or so years and COVID-19 has only accelerated life science and healthcare activity by shining the brightest of lights on it. The record amount of government relief stimulus, focus on vaccine development, mass adoption around virtual care, and the arrival of the virtual IPO roadshow are creating strong tailwinds going into 2021."
Andy Schwab, Founder and Managing Partner of 5AM Ventures
"The lifesciences sector had a very busy and productive quarter. Investment trends for biotech & pharma have been strong for the last several years, but the COVID-19 pandemic has significantly increased investment into these companies, especially companies focused on the discovery, development, and production of vaccines and anti-virals, areas that had previously been underfunded. We've also seen continued strong investment into oncology, neuroscience, and rare diseases including through gene therapy, cell therapy, and other novel ways of treating diseases. These surges in investment over the last two quarters could result in a 5-10-year boost for the industry."
Patricia Nakache, General Partner at Trinity Ventures
"The data from Q3 is consistent with what we've seen on the ground—the remarkable resiliency of the startup ecosystem. The COVID-19 pandemic has accelerated the adoption of startup innovations in Fintech, Edtech, and telemedicine. This increased usage of new technologies could ultimately result in permanent new models of working, learning and teaching, and receiving healthcare. Startups and entrepreneurs also appear to be moving aggressively to address the major challenges of our time: climate change, healthcare, COVID-19, and more. Many sectors are exploding, while other spaces are being reimagined. We may see significant long-term changes in consumer and business behavior that prove fundamental to the creation of new large companies that emerge from this turbulent time."