U.S. Venture Capital Shattered Records in 2021

Capital from hedge funds, mutual funds, private equity, and sovereigns is driving enormous growth in VC, overshadowing traditional venture funds.

Michael Nagle/Bloomberg

Michael Nagle/Bloomberg

The past year was record-breaking for U.S. venture capital.

In 2021, U.S. investments in venture capital exceeded $300 billion for the first time, nearly doubling 2020’s $166.6 billion figure, according to an early look at PitchBook’s fourth quarter venture monitor. PitchBook analysts also noted an “exceptionally robust” year for VC mega-deals — deals valued at $100 million or more — which produced $190.8 billion in deal value.

“What’s really driving both of these [trends] is increased interest…from nontraditional investors — hedge funds, mutual funds, private equity funds, sovereign wealth funds,” Kyle Stanford, CAIA senior analyst, told Institutional Investor. “They just have an enormous amount of capital, much more than a traditional venture fund.”

In fact, last year proved incredibly fruitful for nontraditional investor participation in VC deals. PitchBook recorded a 64 percent year-over-year growth among nontraditional investors from 2020 to 2021.

“The way that [nontraditional investors] have jumped headfirst into venture…is driving many of the data trends we’re seeing,” Stanford said. “Companies are able to raise these $100 million rounds much easier than they have in the past because there’s so much of this extra-large capital trying to get stakes in these companies before they go public.”


Last year, VC also generated record-breaking fundraising levels, closing on over $128 billion in funds over the course of 2021. Additionally, over the last few years, analysts said VC returns have looked “extremely strong,” a trend that continued into 2021.

“VC has this momentum that is generating these emerging technologies in companies that are on the forward edge of the economy, where they haven’t necessarily been in the past,” Stanford said. “Private equity is also generating some good returns but VC has just outpaced it in the last few years.”

For first-time and emerging fund managers, 2021 fostered a “better environment” than 2020, PitchBook noted. In fact, first-time and emerging fund managers collectively raised $41.3 billion during 2021, a notable jump from $27.5 billion in 2020.

As for the public markets, the initial public offerings market generated an “astounding” $774.1 billion, fueled by special purpose acquisition (SPAC) activity. That may not last. In 2022, PitchBook analysts foresee increased volatility in the public markets, which could disrupt IPOs.

“With increased volatility and maybe skepticism of the losses that VC-backed companies are coming to market with, we could see a more difficult time for companies looking to go public with…metrics that would cause concern for some risk-averse public market investors,” Stanford said.

In December, PitchBook released a report that projected VC growth to continue into 2022, attributing the field’s exponential growth over the past decade largely to increased investor interest in startups, II previously reported. In the December report, PitchBook analysts cited the greatest expected opportunity for VC investors to be in life sciences as 2021 proved prolific for biotech and pharmaceutical deals.

“The way the industry accelerated in 2021 makes it seem like it would be difficult to keep up [in 2022],” Stanford said. “But no matter if there’s a slight decline or plateau in VC, we expect for it to be a strong year in exits…There are a lot of ingredients for a strong year in 2022.”

The complete report will be published in the coming weeks.