Friday Letter: The new normal of mega-deals

The latest Q2 PitchBook report makes note of how hedge funds and other non-traditional investors are expressing a greater appetite for VC deals in various stages. How long this continues remains to be seen.

I can’t imagine too many people are shocked at the latest quarterly numbers from PitchBook, which looks at US venture activity.

As reported by Venture Capital Journal’s Connor Hussey, venture activity has grown at a good clip in the last decade or more, and this trend continued in the second quarter of 2021. According to Pitchbook, investors continued the momentum from Q1 and deployed $75 billion across an estimated 4,302 deals in the US. Late-stage activity through the first half of the year ($108.8 billion) was close to the amount recorded for the whole of 2020 ($109.8 billion).

Except for a couple of months at the start of the pandemic, when shelter-in-place orders were given, we have been seeing this story repeated quarter after quarter.

And we can point to mega-deals as the source. In Q2, transactions of $100 million or more  reached a record high of $85 billion in the US, thereby signaling the largest concentration of capital ever recorded in VC.

Similarly, VCJ’s Emilia David last week reported on how Tiger Global has been leading the way internationally in terms of large investments. The firm has put $26 billion to work in 143 rounds, which comes to an average of $181.8 million per investment round through the first half of the year. This is part of a larger trend of hedge funds having a greater appetite for VC deals in various stages, as the PitchBook report notes.

The bottom line is that mega-rounds are not only more commonplace, but that more non-traditional investors are participating in venture deals. This is all likely to lead to more investment rounds and exits in the quarters to come.

We all know this is the new normal. The question, then, is how long will it continue?

Let me know what you think, and feel free to drop me a note at agoldfisher@buyoutsinsider.com.