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VC Deals ‘Skyrocketed’ This Year, Thanks Partly to Nontraditional Investors

Deal participation is expected to continue with nontraditional investors setting a “completely new bar of expectations.”

The venture capital industry is charging “full steam ahead,” according to a new report from PitchBook, released Wednesday. In the first half of 2021, 7,058 deals closed, totaling $150 billion; the full year figure is expected to surpass 2020’s total of $164.3 billion. Part of that rise has to do with a trend that took off in 2018, where nontraditional investors — mutual funds, hedge funds, corporate investors, and crossover investors — are increasingly participating in VC deals. 

In the first half of 2021, 3,301 deals with nontraditional VC investor participation occurred. For perspective, over the course of 2020, the same cohort participated in 4,040 deals. 

“Through Q2, activity by nontraditional investors is not merely on track to reach a new high, but is also likely to set a completely new bar of expectations,” the report said. 

The report defines nontraditional VC investors as any firm or institution not labeled as a VC firm. According to the report, while deal count for these institutions has increased modestly, the deal value from these investors “skyrocketed,” with the median late-stage deal size reaching $43 million in the first half of 2021, surpassing the 2020 median by $18 million. 

“The deal value attributed to rounds with nontraditional venture participation cannot be solely linked to nontraditional investors because many venture firms also participate in those deals,” the report said. “However, venture has become ingrained as part of these institutions’ investment strategies.” 

Nontraditional investor participation in VC gained traction in 2018 when deals with the cohort surpassed a record $100 billion. But, while a diversified group of investors in the asset class can add benefits — particularly those with expertise in the public markets during late-stage investments — there are also risks to keep in mind.  

“Applying public market discipline during early-stage investment can prove counterproductive when companies are not ready for that degree of oversight,” the report said. “Additionally, a lack of experience on the part of many NTIs can yield irregular deal terms and valuations that are unappealing for traditional VC investors.” 

The report also documented strong exits for the industry. In the first half of the year, overall exit activity reached a record-breaking $372.2 billion in six months — already, a 30 percent increase from what was an all-time record last year at $287.5 billion.

“The direct listings of Coinbase and Roblox drove over $120 billion of this value just on their own, which speaks to the power of outliers, as well as just how large startups are able to grow in the current VC market,” the report said. 

Angel and seed deals also saw a strong first half of the year. According to the report, total angel deal value reached a $2.1 billion and seed deal value reached $4.9 billion. Researchers said they “expect activity in these earliest venture stages to remain high for the foreseeable future.” 

In late-stage VC, total deal value reached $109.4 billion in the first half of 2021, almost eclipsing 2020’s annual total in just six months.

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