Venture Capital’s Best Year Ever

Big VC firms led the industry to new records in deal making, exits, and fundraising.

Illustration by II

Illustration by II

By every measure, 2020 was a big year for venture capital — at least for the established players.

U.S. venture capital funds set new records in deal making, exits, and fundraising last year, according to a new report from PitchBook and the National Venture Capital Association. Deal value topped $150 billion for the first time, while exit value hit a record $290 billion after a surge of public listings in the second half of the year. Meanwhile, new venture capital funds raised $73.6 billion, surpassing the 2018 high of $68.1 billion, according to the report.

This increase in fundraising and investment activity occurred even as the economic uncertainty brought by the coronavirus pandemic impeded other alternative asset classes. Third-quarter data from Preqin — the latest statistics currently available — show fundraising challenges across real estate, private debt, natural resources, and infrastructure. Meanwhile, PitchBook reported that U.S. private equity fundraising dipped 36.6 percent in 2020 compared to 2019.

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“The unprecedented macro events of 2020 did not deter the overall VC industry, which reached another banner year across the venture cycle,” Bobby Franklin, president and chief executive officer at NVCA, said in a statement Thursday on the report.

The overall success of the venture capital industry, however, belies the challenges faced by less established managers during the pandemic. According to PitchBook and the NVCA, just 321 venture capital funds closed in 2020, down from 505 in 2019. Only 50 of these funds were raised by first-time managers, a seven-year low.

Meanwhile, established firms accounted for more than 70 percent of the total capital raised, thanks to a record number of new mega funds. The number of raised mega funds — defined by PitchBook as those with at least $500 million in assets — nearly doubled from 24 in 2019 to 44 last year, according to the report.

“Because many in-person meetings between GPs and LPs were canceled due to the ongoing pandemic and growing uncertainty, LPs tended to favor and commit capital to GPs with strong relationships and solid past fund performance,” the report stated.

Despite this increased divergence between established players and newcomers, PitchBook and the NVCA said that the venture capital industry is in a healthy position, with $152 billion in dry powder to deploy.

“While some segments of the ecosystem felt the brunt of the headwinds from the pandemic and economic uncertainty more than others, VC investors are starting the year in a strong position with ample dry powder to put to work,” Franklin said.