The third quarter of the year continued the strong performance of venture capital buoyed by mega-deals.
The PitchBook-NVCA Venture Monitor report showed US venture capital investment through the third quarter was valued at $238.7 billion.
Meanwhile, fundraising through the first nine months of the year reached $96 billion, already surpassing the overall 2020 total of $85.8 billion. Fundraising is expected to break the $100 billion mark in new capital before the end of the year.
“The pace of activity across all facets of the US VC ecosystem in 2021 has been astounding, with many annual records already shattered before the fourth quarter even started,” said John Gabbert, founder and chief executive officer of PitchBook. “However, it’s entirely possible that LPs are hitting the upper limits of their allocation to venture and could potentially slow or plateau in the coming quarters.”
LPs have expressed concern to Venture Capital Journal that the accelerated pace of fundraising, from flagship funds to opportunity funds, has made it hard for them to keep up.
Mega fundraising drove this increase again, with a total of 19 $1 billion or more fund closings through the end of September. Big-ticket fundraising accounted for more than 57 percent of the fundraising value during the period. One such fundraise was for IVP’s Fund XVII, which closed in the third quarter at $1.8 billion, its largest fund to date. On the other hand, the share of funds that sought to raise under $50 million fell to below 50 percent in the number of new funds.
In the third quarter, 162 new venture funds closed, bringing the total number of funds completed within the year so far at 526.
PitchBook said a notable trend this year has been the emergence of impact funds. From January to September, dedicated impact funds raised $5.3 billion, compared with 2020’s $3.7 billion.
Like the previous quarter, late-stage firms dominated investments, especially as mega-deals pushed fundraising. The late-stage market raised $172.6 billion in the nine months ending September. In addition, PitchBook noted that the number of late-stage deals closing through the third quarter has already surpassed the full-year figure from 2020 at 3,865 deals, up from 3,407.
But the early stage still showed some signs of strength in the third quarter with $19.7 billion in deal activity, adding to the year-to-date total of $54.7 billion. This is only the third time ever that early-stage VC deal activity surpassed $15 billion.
“Many VC investors argue that venture is undergoing a fundamental shift when it comes to deal sizes and valuations,” the report said. “The accelerated pace of investments has spurred frenzied competition among investors to identify and fund promising early-stage start-ups.”
Part of the growth in early-stage investment can be attributed to the rise of crossover investors, which is a trend that many analysts believe will continue.
As venture continues breaking records, NVCA president and chief executive Bobby Franklin said lawmakers need to help pass legislation to encourage its further growth.
“There is no denying that the start-up ecosystem is powering America’s economic comeback,” Franklin said. “Lawmakers in Washington who are looking for ways to enhance our economic future should check out these record shattering numbers.”