Dealmaking explodes in Q2, driven by mega-deals

Venture capital is in the midst of another record year marked by record dealmaking at early and late stages, the introduction of huge swaths of capital from non-VC investors and record numbers of mega-deals driving valuations to new heights.

So far, 2021 is shaping up to be venture’s best year on record by almost every conceivable metric, according to PitchBook’s Q2 2021 Venture Monitor.

Investors matched the high-water mark set in Q1 by deploying another $75 billion across an estimated 4,302 deals in Q2, with late-stage activity through the first half of the year ($108.8 billion) almost reaching the full year 2020 total ($109.8 billion).

“US venture investment levels continue to rise as mega-deals become more common and non-traditional investor participation in VC becomes standard,” said John Gabbert, founder and chief executive of PitchBook.

“As the industry looks toward the second half of the year, investors are evaluating whether this level of dealmaking will persist and what its broader impact might be.”

Mega-deals of $100 million-plus also reached a record high total of $85 billion, signaling a larger concentration of capital ever recorded in VC.

But while late stage continues to dominate financing rounds, early and seed-stage activity is also exceeding expectations in Q2 as $19.6 billion of capital was invested across 1,303 deals. The past three years saw early-stage deal value surpass $40 billion, but this year it is slated to pass the $60 billion mark, a new record.

But as the size of the deals continues to grow, so does the crowd of early-stage investors as deal size distribution weighs more heavily on outsized rounds by non-traditional investors, with the proportion of early-stage deals over $10 million approaching 50 percent of aggregate deal count.

This has been partly influenced by the high exit rates, according to the report, which has set an annual record in just six months. H1 2021 exit value rose to $372.2 billion, which is 30 percent higher than 2020’s record of $287.5 billion.

But still, capital investment at the late stage continued to dominate, surpassing the $100 billion mark for the second consecutive year. However, this year it happened in just six months.

The concentration of capital at the late stage has been one of the VC industries wider shifts. So far in 2021, 83.3 percent of late-stage capital raised was in rounds of more than $50 million, compared with 45.1 percent of capital investment in 2011.

Plus, fundraising activity continued fervently as $73.5 billion of new capital was raised by 337 venture funds, coming close to 2020’s high of $80.5 billion.

“The numbers don’t lie, and they prove that entrepreneurs and start-ups are helping to strengthen our economic recovery from the pandemic,” said Bobby Franklin, president and chief executive at NVCA.

“Americans are innovating and investing more than ever creating new companies and new jobs at a time when the country needs it the most.”