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Venture Capital Isn’t Slowing Down in 2022
PitchBook analysts expect the current upward trend to continue, with U.S. investors doing more deals than ever in emerging and established markets.
Venture capital has grown exponentially over the past decade, and it’s not showing any signs that it’ll be slowing down in 2022.
In 2021 alone, VC mega-deal activity reached a total deal count of 784 and generated a cumulative deal value of $182.4 billion — a record high, according to a PitchBook analyst note published this week. In 2011, the deal count was at 46 and the total deal value was only $10.4 billion.
“VC has matured over the last decade,” Cameron Stanfill, PitchBook’s senior analyst and VC lead, wrote. “Gone are the days when VC was not much more than a cottage industry; currently, annual capital investment sits at over $150 billion, and more than $110 billion has been raised by VC funds in the U.S. this year alone. And this growth has not only been significant but also extremely consistent.”
Stanfill attributes the growth to the inflated investor interest in startups over the last decade and a half. In fact, PitchBook analysts found that over the last 15 years, every other month has been in the top 10 percent for capital investments when compared to all other months on record, which means that capital investments have grown consistently over that period.
“This extended period of more dollars flowing to startups has culminated in the swelling inventory of highly valued companies that remain under VC backing,” Stanfill wrote.
In the top four venture ecosystems — the Bay Area, New York, Boston, and Los Angeles — deal count continued to outpace other up-and-coming venture markets in 2021. But Kyle Stanford, a senior analyst at PitchBook, wrote that there are good reasons to predict growth in second- and third-tier markets, including Denver, Austin, D.C., Chicago, Philadelphia, Seattle, and Boston.
In terms of fundraising, over $100 billion has been raised in 2021, and over $22 billion of that capital was raised outside of the top four markets. PitchBook analysts are optimistic that each of the top 10 venture ecosystems will see over 400 deals completed in 2022. “The surge of growth in 2021 was not due to the decline of investment in the top four regions,” Stanford wrote. “In fact, each of those areas also saw record deal count during the year, with the Bay Area surpassing 3,000 completed deals for the first time (and likely to be closer to 3,500 by year’s end).”
Many upcoming VC deals may involve investments outside of the United States. Specifically, Stanford expects U.S. investors to do more deals outside of the country than ever before. This year saw 4,666 non-U.S. VC deals with U.S. investor involvement, a sharp increase from 3,571 deals in 2020 and a huge jump over a decade ago — in 2011, the deal count was a relatively miniscule 809.
Analysts expect the trend to continue into 2025. “U.S. investors have taken heed and continued to push capital into both emerging and established markets around the world,” Stanford wrote. “Areas such as Latin America and Southeast Asia have become major targets for U.S. capital investment, and as these regions grow, so will U.S. investment abroad.”
For VC investors, the greatest opportunity lies in the life sciences, because 2021 marked an explosive year for biotech and pharma VC deal activity. This year, the sector’s VC deal activity reached a “record-shattering” $36.3 billion as of Dec. 1.
As a result of increased VC support, more biotech and pharma companies have gone public, largely through special purpose acquisition companies (SPACs). SPACs provide ample opportunity for life science companies, since many of them are non-revenue generating entities when they go public, due primarily to the long trial periods that new drugs face. In 2021, 32 biotech companies went public via a SPAC, raising a total of $7.3 billion. In 2020, only 11 biotech companies used a SPAC, raising $2 billion in capital.
“This, in turn, has driven valuations to dizzying heights and allowed VC-backed biotech companies to access public market capital earlier in their drug development life cycles than ever before,” Joshua Chao, PitchBook senior analyst, wrote in the report.