PitchBook News - How much bigger can VC get?

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The Research Pitch

October 16, 2021

Off-the-charts VC activity this year might only be the beginning

Even after just three quarters of 2021, it's almost pointless to continue calling out new records in US VC.

More than a half-trillion dollars in exit value has been generated this year. It's a record, of course, but it's also more than double the previous high.

About $239 billion has been invested across the US, which, again, is a new high. But the jump of almost 44% over last year makes "record" somehow an understatement.

This venture market is different.

Despite work-from-home still largely in effect across the nation, the data shows no hint of a pandemic-driven economy. Until it does.

The past 18 months have accelerated trends that have been brewing for several years.

Zoom helped push investment to smaller markets, even though the Bay Area and New York continue to reign supreme.

Fintech and cloud computing are at the forefront of tech, driving more and more venture dollars into the market as cash and fully in-office workforces have become relics of the past.

Nontraditional investors have thrown their weight behind the venture strategy, as well.

In fact, 77% of the total deal value thus far in 2021 has come through a deal with participation from at least one of these institutions.

Hedge funds, mutual funds, PE firms, CVCs and the other nontraditional investors have even gone a step further into their VC strategy, leading 1,800 investments through Q3 that have combined to fund companies to the tune of nearly $100 billion.

While many of the data points in the PitchBook-NVCA Venture Monitor seem outlandish when compared to even a couple of years ago, there aren't many signs that the tides may change in the new term.

US VC firms are sitting on a record amount of dry powder and have already raised $96 billion for new funds this year.

With the enormous amount of capital available and soaring interest in the strategy because of its standout performance in recent years, the venture market of 2021 might just be the opening act.

For more data and analysis, click to download the free Q3 PitchBook-NVCA Venture Monitor.

Feel free to reach out with any questions or feedback, or if you would like to discuss the research.

Best,

Kyle Stanford, CAIA
Senior Analyst, Venture Capital

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Bigger, faster, stronger—PE industry still firing on all cylinders

US private equity dealmaking in 2021 has already exceeded all of 2019—the previous annual record—in both the number of deals closed and cumulative value.

Even more astonishing, the year-to-date combined value of companies exited by PE firms in 2021 is 50% higher than the total for all of 2019.

And we still have a quarter to go.

The watchword in the industry now is speed: capital deployment, deal closings, holding periods, and the fundraising cycle are all moving more quickly than ever, creating a flywheel effect.

Economic recovery, cheap debt, and record dry powder levels continue to drive the dealmaking frenzy.

Macroeconomic headwinds—chiefly supply chain and labor issues, the resulting inflationary pressure, and the specter of interest rate hikes—so far are not slowing activity.

We are also watching the evolution of capital gains tax policy carefully, not just for deal flow implications, but for its potential long-term effects on investment and exit strategies.

Other themes that have been emerging for years have leapt forward in 2021.

We are seeing increasing ESG-related deal flow as GPs look to capitalize on shifts in consumer sentiment, regulation, and government infrastructure spending. And growth equity gained significant ground as a proportion of private equity activity, with sustainability-related deals and forays into late-stage venture increasingly prominent.

In exits, sky-high multiples in some sectors—especially technology—are enabling GPs to realize investments sooner than anticipated.

The largest firms are faring best as public markets continue to provide an attractive exit route, while strategics are also deploying plenty of balance sheet cash.

And GPs are finding additional ways to return capital to their investors, through partial sales, recapitalizations at favorable rates, and GP-led secondary transactions. Firms are increasingly putting their best assets into continuation funds.

In fundraising, the largest firms—and some middle-market managers, as well—are pursuing aggressive step-ups and strategy expansion as many LPs increase their private equity allocations. A wave of PE firm M&A has so far concentrated on secondaries managers.

Runaway performance numbers, combined with (and largely resulting from) the frenetic pace of exits, should drive impressive fundraising figures in the coming quarters.

For more data and analysis, click to download our free Q3 US PE Breakdown.

Feel free to reach out with questions or feedback.

Best,

Rebecca Springer
Analyst, Private Equity

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Webinars & Events

How has the pandemic has impacted interest in ESG?

How do views around sustainability differ among GPs and LPs?

This week, our analysts Hilary Wiek and Dylan Cox explored many key findings from our recent Sustainable Investment Survey: Watch the replay.

Nov. 3: Save the date for our quarterly Venture Monitor webinar, where we discuss the most important trends in US VC. Register here.

In the News

CNBC’s Kate Rooney breaks down our latest VC data.

Our insights and data featured in the press:

Mega-deals are driving US VC activity to record highs. [CNBC]

Since 2010, PE investment in renewables grew at about three times the clip of investment in fossil fuels, albeit from a much lower base. [NYT]

US VC exit figures this year are astounding, driven by public listings. "People are rushing to the exit just so the door doesn't slam right in front of them." [FT]

The unicorn population is exploding. [Wired]

Nontraditional investors are continuing to throw their weight around in the world of venture capital. [Institutional Investor]

If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team.

ICYMI

Highlights from our other research published over the past couple of months:

Market updates

Thematic research

Emerging Technology Research (free previews)

Coming next week (subject to change)

European PE Breakdown (sneak peek)
European Venture Report
Understanding US Private Equity Healthcare Provider Transactions

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PitchBook News - How much bigger can VC get?

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