2021 Venture Capital Records: A Record-Setting Year

Venture Capital Investment Surged in 2021

Investment activity from venture capitalists reached unprecedented levels in 2021.

Analysis of data from multiple sources confirms that the previous year established new global records for venture capital. Both the total amount of capital invested and the number of deals completed were at their highest, with strong performance observed across various sectors and continents.

A Broad and Costly Boom

The current surge in startup activity, viewed through the lens of venture capital, represents a remarkably extensive and financially significant undertaking.

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Considering the recent history of record-breaking venture capital activity, it might be easy to underestimate the exceptional nature of last year. However, 2021 was distinct.

The sheer volume of capital deployed, and the speed at which it was invested, differed significantly from previous years and historical trends.

A positive outcome of this trend is the expansion of venture capital investment into a wider range of markets than seen in prior startup booms.

Consequently, a greater number of founders in more locations are securing funding, although established hubs like Silicon Valley and the broader U.S. market continue to hold considerable influence.

Looking Ahead

Next week, The Exchange will delve into specific sectors, emerging trends, and regional performance. Today’s focus is on the overall scale of investment and the heightened activity levels experienced by venture capitalists last year.

Utilizing data from CB Insights, Crunchbase News, and an exclusive preview from PitchBook, we have a wealth of figures to examine.

Join us as we review what may prove to be the most extraordinary and active year in venture capital history.

(It's also possible that 2022 could surpass these figures; the year has already begun at a rapid pace.)

An Unprecedented Year for Global Venture Capital

The overall investment figures are remarkably significant.

According to CB Insights, venture capital investment totaled $621 billion in 2021, representing a 111% increase compared to 2020. It’s important to remember that 2020 and 2018 were previously considered the years with the highest global venture investment – a record surpassed by 2021.

Crunchbase News reported similar findings, identifying $643 billion in global venture investment for the previous year, a 92% year-over-year increase. Regardless of the specific figure, it’s evident that over half a trillion dollars was channeled into rapidly expanding private companies last year, effectively doubling the amount invested in 2020.

The record-breaking dollar amounts in venture capital were accompanied by a surge in deal activity. However, the global venture deal count in 2021 (34,647 deals, as per CB Insights) increased by a more moderate 31%, contrasting with the doubling of the total dollar value. This difference between dollar growth and deal volume growth can largely be attributed to the prevalence of mega-rounds.

Indeed, venture investments exceeding $100 million experienced an exceptionally strong 2021. CB Insights data indicates 1,556 mega-rounds occurred last year, a 147% increase from the previous high of 630 in 2020. Similarly, Crunchbase News highlights that startups in Series C funding rounds or later secured $413 billion in 2021, a substantial increase of $196 billion compared to the prior year.

This influx of large deals fueled a rapid increase in the number of unicorn companies. Whether referred to as formations or births, a significant number of new unicorns emerged last year. Crunchbase News estimates the rate to be “more than 10 each week.” CB Insights confirms that the total number of unicorns grew from 569 at the close of 2020 to 959 at the close of 2021, representing approximately 69% growth in private companies valued at $1 billion or more within a single year.

The disparity between the growth rate of venture dollars and the slower increase in deal volume resulted in higher startup valuations. CB Insights notes that median early-stage startup valuations rose from $13 million in 2015 to $18 million in 2020, and then to $28 million last year, a gain of around 56% in just one year. Median valuations for middle-stage rounds, according to the same data, increased from $79 million in 2015 to $147 million in 2020, and further to $324 million last year, representing a 120% increase.

Furthermore, late-stage valuations also experienced an upward trend last year. For the first time, the median late-stage round exceeded $1 billion, as reported by CB Insights, up from $524 million in 2020 and $156 million in 2015.

Startups have never secured more capital, at a faster pace, across a greater number of transactions. Correspondingly, venture capitalists have never paid a higher premium for startup equity than they do currently.

Global Venture Capital Trends

While regional data analysis is valuable, focusing solely on global totals can be tempting. The United States achieved record-breaking funding levels in 2021, establishing itself as the leading region by total dollar amount.

Venture capital data from CB Insights and PitchBook-NVCA indicates substantial investment in U.S. startups during 2021 – $311 billion and $329.8 billion respectively. This represents a new high, nearly doubling the figures from 2020, which itself was a record year, as highlighted by PitchBook.

A broad overview of 2021 reveals the U.S. dominance across key metrics, including total funding, the number of mega-rounds, new unicorn companies created, and the overall unicorn count. However, a more detailed examination reveals a more nuanced and interesting global landscape.

Asia distinguishes itself from other regions with a significant share of total deal count. CB Insights reports that Asia accounted for 36% of all deals completed. With a total of 12,485 deals, it surpassed the U.S. in this area “for the first time in seven years of tracking.” While dollar totals remain lower than the U.S., they are substantial and growing rapidly, reaching $176 billion – an 89% increase year-over-year.

Notably, half of Asia’s deal volume originated in China. This is particularly significant given recent uncertainties. Furthermore, research from Preqin indicates that venture capital investments in China reached a record $130.6 billion in 2021, a substantial increase from $86.7 billion in 2020.

The trends observed in the U.S. are largely mirrored globally. The creation of new unicorn companies is accelerating worldwide. Funding amounts are increasing, as are the number of mega-rounds. Median deal sizes are also rising, even more so in Asia ($6 million) compared to the U.S. ($5 million), and also in Canada ($3 million), Latin America ($2 million), and other global regions ($2 million).

The consistency of last year’s data suggests a growing convergence in venture capital trends across the globe. Regional markets are catching up by demonstrating faster growth rates than the U.S. Consider the insights from Crunchbase:

“Venture funding for Latin American startups experienced the most significant growth in 2021, with approximately $19.6 billion invested – representing over 300% year-over-year growth. European startups saw funding increase by more than 150% year-over-year, totaling nearly $116 billion. North America and Asia remain the largest funding destinations, with $330 billion (91% year-over-year growth) and $165 billion (50% year-over-year growth) invested respectively.”

Looking ahead to 2022, will the U.S. venture market continue to thrive? PitchBook suggests positive indicators, such as the increasing flow of capital into venture funds and the prevalence of early-stage deals, which comprised 55% of all rounds in 2021. If the U.S. maintains its momentum, global records could be broken once again.

Fintech and Cybersecurity: A Funding Surge

Let's examine two prominent sectors – fintech and cybersecurity – to understand recent investment trends.

Data concerning the fintech industry reveals particularly striking growth. According to CB Insights, worldwide fintech funding reached $131.5 billion in 2021. This represents a substantial increase from the $49 billion recorded in 2020 and significantly surpasses the previous high of $53.3 billion set in 2018.

Furthermore, the number of deals within the fintech sector also experienced an upward trend. Deal volume rose from approximately 3,500 rounds annually between 2018 and 2020 to 4,969 in 2021.

The fintech expansion observed in 2021 wasn't attributable to a single catalyst. Instead, after fluctuating between $10 billion and $13 billion per quarter throughout 2018, 2019, and 2020, venture capital investments in fintech startups exceeded $30 billion per quarter during the last three quarters of 2021.

While not as dramatic as fintech, the cybersecurity sector also witnessed considerable growth. This is noteworthy considering the successful public offerings of some companies within the field, such as Crowdstrike, and the active merger and acquisition landscape, exemplified by Proofpoint.

As anticipated, venture capital investments in cybersecurity increased significantly last year. Crunchbase News reports that after remaining between $8 billion and $9 billion in both 2019 and 2020, funding for cybersecurity-focused private companies surged to $21.8 billion in 2021.

Although this record-breaking dollar amount was accompanied by a slight decrease in the total number of rounds completed, it suggests a shift towards later-stage investments in cybersecurity compared to other sectors. Nevertheless, these impressive figures highlight the broad-based expansion of capital availability last year – a truly remarkable phenomenon.

The Core Implication

The significance isn't simply the increased volume of capital and transactions, nor the unprecedented number of startups securing funding. It’s also not about venture capitalists abandoning established investment principles to navigate a transformed private market.

Instead, the central point is that the escalating global investment in startup expansion is introducing risk into private markets at an unprecedented rate. This has never been observed before.

How is this risk manifesting? By continuing to fund companies across all stages – early, mid, and late – at the present velocity and magnitude, venture investors are essentially predicting a surge in exit activity.

The Anticipated Outcome

This anticipated acceleration of exits is expected to facilitate the clearing of investments, or successfully transform the illiquid value of private companies into liquid assets like publicly traded stocks or other substantial realizations.

The proliferation of unicorns serves as a key indicator of the current market dynamics, and presents an unresolved challenge. The widespread disbursement of capital globally suggests a potential surge in liquidity events involving these high-value private companies.

At least, this is the expectation within the venture capital community. The coming quarters and years will determine the accuracy of their projections.