ormally, it’s a pretty big deal to report record venture capital funding in a given year. But let’s be honest, are we surprised that 2021 was a record year for VC investment? We’ve now known for months now that it was going to be.
Total global VC investment in 2021 came in at a whopping $643 billion, according to Crunchbase data, up more than $300 billion from 2020 and roughly $350 billion from 2019.
As the chart above shows, this wild surge in funding in 2021 came from a huge influx of late-stage investing, with roughly two-thirds of all investments going into series C rounds or later. As such, with this kind of breakdown (as you might expect) the number of deals in 2021 was not as big as the funding amount might suggest at an initial glance.
Deal volume exceeded 30,000 in 2021, which surpassed 2020 volume but was below 2019 and 2018 levels. Early-stage funding also had a pretty nice year. In total, more than 9,000 early-stage companies received more than $200 billion in investment.
In the U.S., VC funding topped $300 billion, which also came on the back of these later-stage mega deals.
“What’s really driving both of these [trends]is increased interest…from non-traditional investors — hedge funds, mutual funds, private equity funds, sovereign wealth funds,” Kyle Stanford, a senior analyst in venture capital at Pitchbook, told Institutional Investor. “They just have an enormous amount of capital, much more than a traditional venture fund.”
Unicorns continued to climb with hundreds of startups obtaining star-studded status. Here is a breakdown of which cities/regions had the most unicorns in 2021:
- San Francisco Bay Area: 133
- New York: 69
- Greater Boston: 21
- London, England: 20
- Bengaluru, India: 16
- Berlin, Germany: 15
While Silicon Valley and New York unsurprisingly finished at the top of the list, the number of early-stage deals in both regions actually declined in 2021, as more early-stage deals popped up in other emerging startup hubs across the country, like Miami for example.
Globally, London saw the number of unicorns in the city increase by 340% from the prior year, with some of the city’s big deals including companies like the fintech Revolut, which closed an $800 million series E round in 2021, and competitor Monzo, which brought in $600 million from two funding rounds.
“We have big pools of later-stage funding, nearly two new unicorn companies every month, and massive funding rounds and exits,” Laura Citron, CEO of London & Partners, said in a statement, according to CNBC. “This data shows that London is not only a brilliant place for entrepreneurs to start businesses, but also to grow them to a global scale.”
Some of the biggest funding rounds in 2021included the self-driving car company Cruise, which raised $2.75 billion to obtain a valuation of more than $30 billion.
Other big funding deals included the electric carmaker Rivian, which raised more than $5 billion in private funding, and then the online, commission-free brokerage Robinhood, which raised $2.4 billion of private funds. Unsurprisingly, fintech companies lead the way in 2021, with nearly 1,300 companies raising close to $40 billion.
After raising huge private rounds, Rivian and Robinhood went public through initial public offerings. Rivian went public inNovember, opening at a market cap of around $116 billion, only to see that valuation chopped in half.
Robinhood also went public in July and seemed to get caught up as a Reddit-stock play for a time, with its market cap rising all the way to about $47 billion. Since then, Robinhood has come all the way down to a market cap of just over $11 billion.
Both Robinhood and Rivian went public at an interesting time in the monetary cycle. Tech valuations in the public markets seemed to be ready to stretch to the moon until inflation hit harder than expected and theFederal Reserve significantly changed its outlook.
At the beginning of 2021, the Fed didn’t expect to hike interest rates until the end of 2023 or 2024. But higher consumer prices in recent months has led the Fed to begin winding down the tens of billions in additional monthly bond purchases it began when the pandemic started in 2020.
The Fed is also now preparing to hike its benchmark overnight lending rate multiple times this year. The Fed has even said it might shrink its balance sheet, which would effectively remove liquidity from the economy.
The news has sent tech stocks and valuations sputtering and sets up an interesting macroeconomic situation as 2022 progresses. VCs raised an astonishing and record-setting $128 billion in 2021, meaning they should have lots of dry powder right now.
The economy is expected to grow at an incredibly strong pace this year, but headwinds could arise if inflation gets out of control and when the Fed hikes rates and potentially removes liquidity from the economy. We’ll take a look at how VC may perform in a rising-rate environment in an upcoming post, so stay tuned!
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