VCs invest at historic levels, but deal funnel shifting

The PitchBook-NVCA Venture Capital Monitor for the first half of 2021 reveals that the market is set to break a number of investing records, but strikingly, the record levels of investment activity are all being set by the later stages of investment. At the other end of the funnel, activity is increasing, but not at the same pace as the overall market.

Through June, the market is on pace for $300 billion invested (nearly doubling 2020’s level) across more than 16,000 investments (a 25 percent increase on the previous record), leading to median venture capital (VC) deal sizes that are roughly 50 percent larger than in 2020 (the increases for angel and seed deals are much smaller).

This explosion of investing activity is supported by what is sure to be a record year for exits — at $372 billion, the exit value through the first six months has already surpassed 2020’s record of $287 billion.

First financings of startups in 2021 may approach 2019’s record of nearly 3,500 but has fallen to just 25 percent of all deals (from 40 percent 10 years ago).

Angel and seed activity has fallen by more than 10 percentage points since 2015 to just 39 percent of all deals, while later-stage VC has risen to 31 percent of deals. Meanwhile, the nature of angel and seed deals continue to change, as 15 percent of these investments in 2021 were rounds of more than $5 million, which is four times more than the rate 10 years ago.

On the whole, more companies at all stages of development are being funded than in the past. However, 2021 is continuing a market shift in the share of activity from earlier to later stages. Absent a near-term reinvestment in new companies, therefore, startups that survive their first funding rounds may soon find themselves in an ideal position for founders: a market with an abundance of capital and relatively few competitors.