Venture capital valuations at both the early stage and late stage surged during the second quarter, a PitchBook report shows.
According to the private market data firm, the average and median pre-money valuations at early-stage companies reached all-time highs of $105.4 million and $50 million, respectively. Meanwhile, late-stage companies recorded average and median second-quarter valuations of $882.4 million and $160 million, respectively, cementing a record first half.
The report attributed the rapid valuation growth to a positive economic outlook and cash influx from nontraditional investors, including mutual funds, hedge funds, sovereign wealth funds, and corporate venture capitalists. These nontraditional investors have been particularly active at the late stage, boosting the median pre-money valuation of their deals to $235.5 million, more than four times the valuation of deals made by traditional VC firms.
“In 2021, the activity of these nontraditional investors has been the highest it’s ever been,” said Kyle Stanford, senior analyst at PitchBook. “They are driving price growth.”
Because some of the nontraditional investors, like Fidelity, are so big, the late-stage investments are better fits for their VC programs, Stanford explained.
“Some of them are so large that, spending the time sourcing to invest even $1 million is not worth it to them,” Stanford said. “But there is also the difficulty in these companies finding really young and small companies to invest in.”
Over the first half, PitchBook said average late-stage valuations had reached an all-time high of $914 million.
“While there are still two quarters left in the year, 2021 could be the first year that the average late-stage VC pre-money valuation cracks the $1 billion mark,” the report said.
Notable VC financing in the second quarter included SpaceX, which raised $1.2 billion at the late stage and reached a valuation of $73.2 billion. In addition, North Carolina-based game developer Epic Games, valued at $27.7 billion, raised $1 billion in April at the late stage. Investors have continued pouring capital into the two companies, even though neither has announced plans to go public.
“Some of the valuations we have seen from single companies over the last year have been huge,” Stanford said, citing the payment start-up Stripe, which was valued at $95 billion in a March financing round. “In the past, we have never seen so many companies raising $10 billion-plus valuations. Generally, those companies would have gone public or been acquired by this time.”
“The extra competition right now in VC is really driving those prices higher,” Stanford added.