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A guide to understanding the decentralized future of finance
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"What is DeFi?"
It's one of the most common questions in fintech this year. And our new research has all of the information you need to get started.
DeFi, short for decentralized finance, uses blockchain technology to execute financial services without an intermediary—and the space has exploded over the past 12 months.
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| Click to see this and many other diagrams in our DeFi Primer |
One common metric used to measure the growth of this space is total value locked (TVL), which measures the amount of crypto committed to DeFi smart contracts for conducting financial services.
Over the last year, TVL has grown from $2 billion to $108 billion and peaked at over $150 billion in May.
Investors are also extremely bullish, pouring in around $2 billion into DeFi protocols during the first half of 2021.
Still, DeFi is nascent, and the high frequency of hacks and scams makes this space seem like the Wild West.
Many of the protocols are still too complicated for use by everyday consumers, and it's also likely that new regulations will reign in some of the DeFi activities.
DeFi is an esoteric market loaded with jargon and technical complexity, but we sought to simplify the space in our latest research, which includes:
- a market map of the DeFi ecosystem, covering segments such as yield farming, DEXs, and derivatives.
- a breakdown of DeFi blockchain platforms, types of projects, key risks, and our market outlook.
- data on record-breaking VC investment in DeFi, and other metrics we track like TVL and gas fees.
Click to read our DeFi Primer.
(Editor's note: We've made the full research note available for free!)
Feel free to reach out with any feedback or questions, or if you would like to discuss the research.
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Best,
Robert Le
Senior Emerging Technology Analyst |
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Greater China VC activity soars, but uncertainty looms
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This past week, we initiated research coverage of the Chinese private markets with the launch of our inaugural Greater China Venture Report.
This report encompasses China, Hong Kong, Macau, and Taiwan, and it's available in both English and simplified Chinese.
Capital availability and VC investment within Greater China have drastically increased since 2015, as disruptive startups aim to take advantage of building new businesses for a region served by the world's most populous country and second-largest economy.
Likewise, institutional capital has followed as investors continue to raise new VC funds to satiate the region's entrepreneurial appetite.
For many nondomestic VCs, investing in Chinese startups represents both a paradigm shift from Western companies, given the sheer operational scale and speed of the region's innovation economy, as well as an opportunity to invest in first-in-class startups in a rapidly growing market.
Some highlights from the report:
- After a pandemic-mired 2020, the region's VC investment reached $56 billion in H1 across 2,366 deals—both on pace for YoY growth. Nondomestic investors participated in nearly 25% of deals
- Many investors are attracted by the region's rapidly expanding middle class, accelerated mobile adoption, multinational corporation penetration, and high-tech initiatives from economic development councils.
- VC exits have soared in recent years. H1 notched $137.5 billion in exit value across 99 exits, with annual exit value on pace to shatter records fueled by 19 billion-dollar-plus public offerings.
Recent scrutiny and new legislation from Chinese regulators could dampen some of the fervor going forward.
Strong investing momentum has been met with strict regulations in recent months surrounding overseas listings and education & tutoring companies.
Time will tell what impact recent changes will have; for now, the current environment is generating sufficient dealmaking and exit activity to continue powering Greater China's venture industry.
Click to download the free H1 2021 Greater China Venture Report.
Please feel free to reach out with any questions or feedback.
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VC fund returns for last year reached an astonishing 30.4%, much higher than their three-year mark and almost double the 2020 full-year returns for any other private strategy.
PE and funds of funds also posted strong numbers, as covered in our Global Fund Performance Report.
The story wasn't as rosy, however, for strategies like private debt, real estate and real assets.
Get the latest on horizon IRRs, net cash-flows and more (plus the underlying data in XLS format): |
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We're running out of superlatives to describe the European VC market.
Through H1, valuations reached record highs at each quartile and across all financing stages, according to our latest European VC Valuations Report:
- The increased presence of nontraditional investors continues to drive this unprecedented pricing environment.
- The aggregate value and quantity of European unicorns is skyrocketing to new heights.
- Across all quartiles, exit valuations are also pacing well above 2020's figures.
How high have the numbers gotten? How sustainable is this frenzy? Get all of our latest data and analysis (and the underlying data in XLS format): |
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VC Returns by Series: Part III
Deal-level performance on a capital-weighted basis
Does raising more capital make the average startup more successful?
Are venture investors getting better at identifying "winners" earlier?
When a VC-backed company exits, how much bigger are Series A returns compared to Series B through F?
These are the types of questions raised in our latest research into deal-level performance—a dataset we continue to develop in our ongoing coverage.
What the new data shows:
- Across all stages, but especially the late stage, companies that raised larger amounts of capital had higher rates of successful exits.
- Series B returns were closer to Series C+ figures than Series A returns.
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AGTECH—Extreme weather events are drastically impacting growers and leading to ripple effects throughout the global food system.
Perhaps it's no wonder, then, that VCs are continuing to pour money into agtech, particularly companies producing agriculture biochemicals that mitigate environmental harms and build resiliency in crops, according to our new client-only research:
- Insect farming is also booming, as the industry's reduced costs and environmental impact make it attractive to both companies and consumers.
- Investment into predictive weather analytics tools has already eclipsed 2020's total by 70%, as startups leverage satellite mapping, AI, and machine learning technologies.
- Agriculture drones are gaining use in imagery analytics and tasks like seeding and spraying.
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RETAIL HEALTHTECH—Mental health apps. Gut health. Sleep tech.
There are several consumer-focused opportunities emerging in the world of healthtech, and Q2 marked another huge quarter for capital invested ($3.5 billion), according to our latest client-only research:
- Ten mega-deals in Q2 accounted for ~60% of that deal value and they've driven this year's median deal valuation to twice that of 2020.
- Roughly $1.7 billion in exit value across 10 transactions has exit activity on pace for new annual records in both value and count.
- VCs have been increasingly targeting the tech that helps improve sleep quality, as a growing amount of people track their sleep habits.
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How have private fund managers been performing?
And how have their strategies evolved over time?
Our webinar this week focused on funds and GPs, as we broke down our latest performance data and introduced how we built the PitchBook Private Manager Style framework: watch the replay
- Sept. 14: Nizar Tarhuni, the head of our institutional research group, will join a webinar to discuss how PE and VC have been impacted by social, political, economic and environmental events. [BVCA members only]
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AI & machine learning analyst Brendan Burke weighs in on Databricks' $1.6 billion funding round at a $38 billion valuation:
"Databricks' 1.3x valuation step-up in seven months is justified by 41.1% ARR growth in 2021 to $600 million as of August 31.
"The company is achieving rapid growth at scale and has continued to develop new open-source projects, recently announcing Delta Sharing: a data collaboration protocol in partnership with Microsoft Azure, Google, and Amazon Web Services, along with other leading database vendors.
"This Series H is led by Morgan Stanley's Counterpoint Global mutual fund, demonstrating the appeal of the company to crossover investors.
"Databricks' management claims that the round does not push back its public listing timeline and the company may consider a direct listing or IPO."
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Brendan Burke
Senior Emerging Technology Analyst
AI & Machine Learning |
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Our insights and data featured in the press:
- Public investor enthusiasm for electric vehicles is high. That's one key reason why Rivian's IPO is worth watching. [Axios]
- Greater China VC has had a rollercoaster year, but consumer businesses still have some important tailwinds. [Nikkei]
- What returns are reasonable to expect from investing in pro sports teams? How does that compare to other options? [Institutional Investor]
- Index Ventures is funding startups faster than ever with no signs of slowing. [Insider]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team. |
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Highlights from our other research content published this quarter:
Market updates
Thematic research
Emerging Technology Research (free previews)
Coming next week (subject to change)
- US PE Fund Performance by Investment Style
- SoftBank Runs on IPOs (sneak peek)
- Beyond Fund I: Analyzing performance and fundraising trends of US PE emerging managers
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Since yesterday, the PitchBook Platform added:
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18
VC valuations
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1280
People
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315
Companies
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26
Funds
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