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Venture capital investments top $621 billion to set a record in 2021

MarketWatch logo MarketWatch 1/12/2022 Steve Gelsi
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While 2021 already stands out with a series of all-time highs for the S&P 500, the world of private funding for startups and other privately held companies set plenty of high water marks as well in the past calendar year.

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Globally, venture capital financings set a record in 2021 with $621 billion in combined deals, more than double the $294 billion recorded in 2020, CB Insights said in its “State of Venture” report released Wednesday.

Fueling that total was a record of 1,556 rounds of venture capital fundings valued at $100 million or more, greatly surpassing the old record of 620 from 2020.

The number of private companies valued at $1 billion or more rose 69% in 2021 to 659 amid rapidly rising valuations for late-stage venture deals, CB Insights reported.

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Mergers and acquisitions also hit a record of 10,792 deals in 2021, up 58% from 2020, as the tally crossed the 10,000 mark for the first time.

While the growth in the number of new special-purpose acquisition companies started to slow, SPACs overall grew their median exit value to $1.6 billion in 2021, about triple their median IPO valuation of $547 million.

Financial technology, or fintech companies, raised $132 billion in 2021 and accounted for 21% of all venture dollars, as the hottest type of venture capital deal. The fintech total grew by 169% compared to 2020.

“Fintechs also saw the highest proportion of early-stage deals of any industry, indicating that the sector is ripe for explosion in 2022 and beyond as startups mature,” CB Insights said.

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With 328 deals, Tiger Global ranked as the top venture capital investor in the world in 2021, followed by 314 investments by SOSV, 276 for Sequoia Capital China, and 240 deals each for Andreessen Horowitz and Insight Partners.

Markus Bolsinger, co-head of the private equity practice at Dechert, told MarketWatch that venture-capital firms and other private capital investors have been drawing more and more capital from pension funds and other limited partners searching for yield in a low interest rate environment. 

Assets under management of private equity and venture capital funds on average have grown at rates of about 10% and are expected to continue at that rate for the time being. Meanwhile, assets under management dedicated to growth equity investments in more mature companies that are past the startup phase have grown at about 21% a year across the board, he said.

“That’s where a lot of the money and talent are going,” he said, in reference to the more rapidly expanding growth equity bucket.

Bolsinger said that one reason private capital is outperforming public equities over time is that the private companies have more finely tuned boards of directors.

“The private equity model is the superior governance model,” he said. “It’s their job to make sure a company does well. They’re not just showing up for quarterly meetings to go over earnings.”

The record number of M&A deals reflects the need for private investors to put to work the increasing amounts of capital from their institutional investors, he said.

“Capital needs to be deployed,” he said.

For its part, Dechert has not seen any drop in its M&A pipeline as it looks toward 2022. “There’s no letting up” from the record M&A levels of 2021, Bolsinger said.

Martin Nussbaum, a partner with Dechert who works on private company deals, said investors have been seeking out private fund vehicles that offer more attractive returns than traditional stocks or bond funds.

“The low cost of debt financing and its availability have made it possible for funds to offer attractive prices for companies without punishing the projected [investment returns] for the acquisitions,” Nussbaum said. 

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