PitchBook Analyst Note: High Valuations, Higher Returns

Why nontraditional investors are expected to continue their push into venture

Nontraditional investors (NTIs), who we define to include PE investors, mutual funds, sovereign wealth funds, hedge funds, corporations, and family offices, have ramped up their involvement in venture markets in the last several years. We estimate that NTIs have between $250 billion and $350 billion to invest in the global venture market, effectively doubling the capital available to VC-backed companies worldwide.

In our latest analyst note, PitchBook analyst Kyle Stanford shows that venture has generated strong returns for NTIs and explains why this group is expected to continue its activity in VC-backed companies.

Key takeaways

• In 2020, nontraditional venture investors not only participated in 77% of the US market’s deal value but were also beneficiaries of around 95% ($285 billion) of the year’s total exit value. 
   
• Annualized returns from NTIs’ investment in Series B and later have ranged between 10% to 15%. While these returns may not satisfy traditional venture firms’ expectations, NTIs have a different risk profile and can justify relatively lower returns.
   
• Although nontraditional investors are generally not set up to invest in asset classes with long periods of illiquidity, they tend to enter VC-backed companies during later stages. This results in average hold times of only 3.7 years, which is considerably less time than it takes for a typical startup to achieve an exit.