State of the Venture Capital Industry MARKET ANALYSIS Spring 2021
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Table of Contents
3
4
6
8
Introduction
Fundraising
Investing
Valuations
10
13
26
Exits
Trends
Conclusion
2021 State of Ve nture Cap ital | 1
Introduction
2020: A Resilient Year The 2020 State of the Venture Capital Industry report analyzes the evolution and emergence of trends in the venture industry during an unprecedented year. In the pages ahead, we highlight salient headlines and statistics to help inform our readers about the most important fundraising and investing activities, valuation trends, and key exits of 2020. We also take a closer look at certain high-growth sectors (enterprise software, consumer, fintech, and healthcare), the SPAC phenomenon, and the venture market in China. 2020 was another record-breaking year for the venture industry in terms of capital raised, dollars invested, and exits. With the challenging backdrop of a global pandemic, economic recession, social and racial unrest, and a contentious election in the US, the buoyancy of these statistics is that much more remarkable. While venture activity slowed for a couple of months in the spring of 2020 during the height of COVID-19 lockdowns, the venture industry bounced back during the summer months and continued with unabashed fervor throughout the remainder of the year. While certain sectors of the startup economy struggled in 2020, notably travel and hospitality, other industries benefited as consumers learned, worked, and shopped from home, driving what many say was several years’ worth of digital adoption and advancement over the course of just three quarters in 2020. All in all, the venture industry exhibited impressive resilience amid macro headwinds and uncertainty.
“During 2020, COVID-19 created numerous challenges for governments, businesses, and consumers. It also created significant opportunities, particularly for tech-driven companies with solutions able to help businesses quickly respond to the shifting needs of their workforce and their customers.” - KPMG Q4 2020 Venture Pulse Report
2021 State of Ve nture Cap ital | 3
Fundraising
Fewer Funds Raised A Record Amount of Capital For the second year in a row, fewer venture funds raised capital than in the prior year. Unlike in 2019, however, when total dollars raised also fell below what was raised in the preceding year, in 2020, that smaller number of funds raised a record high $73.6 billion. In fact, 36% fewer funds raised 30% more capital in 2020 compared to 2019. Healthcare investors raised nearly $17 billion, marking the fourth straight year that the sector has reached a new fundraising record. Established firms made up 75% of the fundraising total; only 50 first-time funds were raised in 2020, representing a 46% decline from 2019 and a seven-year low. These statistics indicate that fund sizes continue to grow – the average fund size has increased 262% over the last five years to $235.8 million – and that capital is increasingly concentrated within more established firms. A record 14 billion-dollar funds closed in 2020, as well as a record 30 funds raising between $500 million – $1 billion. These large vehicles, many of which have been labeled growth or opportunity funds, allow venture capitalists to follow-on and support their best performing companies, particularly as those companies stay private longer. Mega funds also enable investors to offer “full-stack” funding across all stages of a startup’s life cycle, an important differentiator and advantage for firms in the hyper-competitive venture environment. Total US Venture Capital Raised $80 595
$70 521
$60
520
505
469 404
$50
321
$40 235
$30
$24.9
$20.7
$36.2
$40.6
$46.9
$42.0
$68.1
$56.4
$73.6
$0
$24.1
$10
155
177
$18.6
$20
261
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020*
Capital raised ($B)
Pitchbook as of December 31, 2020.
Fund count
US VENTURE FUNDS
321
RAISED
73.6B
$
Limited Partner Activity Reflects Bullishness In March 2020, it seemed as though the bear market for stocks might negatively impact venture fundraising for the remainder of the year, as limited partners – particularly public pensions and endowments – faced the denominator effect. But the public markets rebounded more quickly than expected, which helped prevent limited partners’ allocations to venture capital from becoming too inflated relative to allocation targets and overall portfolios. In addition, as the IPO window opened during the second half of 2020, LPs continued to see exits and liquidity across their portfolios. This success encouraged investors to continue allocating record amounts of capital to venture funds, arming the industry with $152 billion in dry powder at the start of 2021. Fundraising for venture capital has remained elevated in part due to the enormous opportunity set for venture capitalists to fund the creation, growth, and scaling of truly disruptive technology and healthcare companies. COVID-19 has ushered in a new wave of opportunities for companies in the logistics, delivery, healthcare, fintech, and business productivity sectors. Limited partners in venture funds continue to be excited about a growing and dynamic market opportunity, as well as the potential to generate attractive returns that are accretive to their overall portfolios in what continues to be a low interest rate environment. As the charts below suggest, LPs have benefited from positive net cash flows from their portfolios and have steadily increased their allocations to venture capital in recent years. US VC Cash Flows
Mean Venture Capital Allocation (%)
$60
16 $40
14 12
$20
10 8
-$20
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
$0
6 4 2
-$40
-$60
0 Contributions ($B)
Pitchbook as of March 31, 2020.
Distributions ($B)
Net cash flow
2009
2011
2013
2015
All Other Endowments & Foundations Mean
2017
2019
Top Decile Mean
Cambridge Associates as of June 30, 2019. 2021 State of Ve nture Cap ital | 5
Investing
Fewer Deals Fetched a Record Amount of Capital “I haven’t seen anything like this in over 20 years. The party is as loud and the drinks are flowing as freely as the dot-com boom, despite that we’re all drinking at home and alone.” - Eric Paley, Founder Collective
2020 was a very active year for venture investors despite the initial challenges of virtually sourcing, conducting due diligence, and executing deals during the pandemic. Investors adjusted quickly to virtual deal-making and investments continued at a rapid pace, defined by compressed due diligence periods and shorter amounts of time between financings. Invested capital across all stages increased 13% year-over-year to more than $156 billion, topping the prior high of $120 billion set during the dot-com craze of 2000. 2020 marked the third year in a row that investors deployed over $100 billion into startups. While deal count decreased by 10% across all stages with the sharpest decline in the angel/seed and early stages, the number of later stage deals actually increased. Total US Venture Capital Raised
INVESTED
$
156.2B
$180
14,000
$160
12,000
$140 10,000
$120
8,000
$100
Deal value ($B) Deal count
$80
6,000
$60
$156.2
$138.1
$142.7
0
20 19 20 20 *
$87.1
2,000
20 18
$80.8
20 17
$85.1
20 16
$73.4
20 15
$48.3
20 14
$41.5
20 13
$45.2
20 12
$31.8
20 11
$27.5
20 10
$37.1
20 09
$38.2
20 07
20 06
$0
20 08
11,024
$20
4,000
$29.7
DEALS
$40
Pitchbook as of December 31, 2020. 2021 State of Ve nture Cap ital | 6
Late Stage Activity Flourished The boom in invested capital in 2020 was driven by a proliferation of late stage deals. Two-thirds of all deal value in 2020 came from late stage rounds, the highest percentage on record. For the first time ever, investors deployed over $100 billion in a single year to late stage companies. There was a 29% year-over-year increase in late stage capital invested, a significantly faster growth rate than the increase in late stage deal count (just 5%), which suggests that the size of late stage rounds has continued to balloon. Large rounds of over $100 million, typically invested in late stage companies, accounted for nearly half of the venture funding that startups raised in 2020. Those 321 mega rounds topped the previous record of 242 in 2019, reflecting a 33% year-over-year increase and a 192% increase over the last five years. The surge in late stage investing is a result of companies staying private longer, which in turn has been fueled by the availability of capital from numerous market participants, including traditional VCs with growing stores of dry powder, cross-over players looking to capitalize on startups’ growth in the private markets, and non-traditional investors seeking meaningful returns in the low interest rate environment.
US Deal Activity ($B) by Size 100% 90% 80%
140
12,000
120
10,000
70% 100 $50M+
60%
40%
$25M-$50M 80 $10M-$25M 60 $5M-$10M
30%
$1M-$5M 40
20%
Under $1M 20
50%
10%
0
2015 Mega Rounds
110
+192%
2020 8,000 Mega Rounds
321
6,000 4,000 2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
0
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
0%
Pitchbook as of December 31, 2020. 2021 State of Ve nture Cap ital | 7
Valuations
Late Stage Valuations Surged… “The 0.01% of these [very high-quality, fastgrowing] companies are almost in the ‘I-canname-the-price-I-want’ mode, and they’ll often get it in the private markets (within reason) if the growth and efficiency are there.” - Logan Bartlett, Redpoint Ventures
Late Stage Early Stage Seed Angel Pitchbook as of December 31, 2020.
YoY Valuation Increases
While valuations across all stages increased in 2019, 2020 proved to be a year in which many late stage startups notched significantly higher valuations. Late stage pre-money valuations for companies raising Series C rounds or later increased markedly by 17% year-over-year, the fourth consecutive year of increases to the median. This dynamic is not surprising given investors’ eagerness to deploy capital into attractive, high-growth companies, resulting in intense competition among investors and upward pressure on valuations. The astounding performance of the public markets in 2020, particularly in the technology sector and more specifically in cloud computing, also boosted private market valuations on a revenue multiple basis. On an absolute basis, late stage valuations are high, but it’s important to recognize that many of these mature companies would have already been public if it was 20-30 years ago. There is a whole new generation of technology companies today that are shattering historical norms and setting new precedents.
Median Late Stage Pre-Money Valuations ($M)
+18%
$90 $80 $70
+7%
$60 $50 $40
-7%
$30 $20 $10
-17%
$0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020* Late VC
Pitchbook as of December 31, 2020.
…As Earlier Stage Valuations Moderated “Everyone is saying ‘I can’t miss the next Snowflake at A or B or C.’ It’s not just fear of missing out: It’s now fear of missing that company that could be a $100 billion company. That fear is sharpened.” - Semil Shah, Haystack
Pre-money valuations at the early stage for companies raising Series A and B rounds also grew in 2020, but the 7% year-over-year increase was not as dramatic as the growth in late stage valuations. Early stage valuations have been on a steady incline over the past 11 years, increasing by 257% over the last decade and easily outpacing increases at other stages over that time period, including late stage. This upward trend is a result of numerous factors, one of which is the abundance of early stage capital chasing Series A stage companies, which has created a highly competitive environment. In addition, Series A investors continue to demand more proof points and traction from the companies in which they invest, meaning they are funding older and more advanced companies than they were five years ago, warranting higher early stage valuations. In contrast to late and early stage valuations, angel and seed valuations declined by 17% and 7%, respectively, in 2020. Notably, this marks the first year in a decade that saw seed valuations decline. The decline in angel and seed stage activity and valuations in 2020 is likely a function of the uncertainty and challenges of the past year, which led some wouldbe entrepreneurs to delay their startup endeavors. Venture investors also likely prioritized investing in less nascent ideas amidst a faltering economy, as well as funding existing portfolio companies that needed capital to survive and/or take advantage of unique opportunities.
Median Angel, Seed & Early Stage Pre-Money Valuations $35
$30 $25 $20 $15 $10 $5 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020* Angel
Seed
Early VC
Pitchbook as of December 31, 2020.
2021 State of Ve nture Cap ital | 9
$350
1088
$300 874 $250
548
494
980
1000 928
744
800 600
482
$290.1
$257.4
$121.9
$100.0
$72.5
$72.9
$112.7
400
$100
$0
938
629
$150
$50
1200
1098 1121
1040
911
$71.7
$200
720
$128.5
77% of total exit value
Number & Value of Exits
$67.0
$222B of exit value
$42.8
11% of total exits
Snowflake’s IPO in September was one of the largest technology issues in 2020. The company priced above its expected range, reflecting investors’ strong appetite for the fast-growing, cloud-based data management business. Snowflake’s IPO – resulting in a $33 billion market capitalization at the time of the offering that was more than double the $12.4 billion valuation it fetched in a private funding round earlier in 2020 – was the most highly valued software listing ever. Its IPO fueled enthusiasm for a string of subsequent, high-profile IPOs, including JFrog, Sumo Logic, DoorDash, and Wish. 2020’s largest and most anticipated IPO, Airbnb, raised $3.5 billion, valuing the home-rental company at $47 billion.
$16.9
43% larger YoY
The venture-backed exit story of 2020 was dominated by IPOs. While overall exits – including mergers, acquisitions, and buyouts – decreased 17% year-over-year, the number of IPOs increased by 24% and helped to drive a 13% increase in overall exit value. 2020’s 102 IPOs set a decade record in terms of number and value, but exit activity was not linear throughout the year. In the early months of 2020, the number of venture-backed exits was on pace to be the lowest since 2011, largely due to the pandemic, economic uncertainty, and public market volatility. The stimulus supplied by the US government and Federal Reserve and the recovery of the public markets in May and June, however, set the stage for a banner second half of the year for exits, particularly IPOs. Drug startups, in contrast to technology startups, capitalized on pandemic-driven tailwinds and were active issuers throughout the year. It wasn’t until summer that the window opened more widely for technology IPOs.
$20.1
102 IPOs
An Epic Year for IPOs…
$57.3
by the numbers:
Exits
$33.4
2020 IPOs
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020* Exit value ($B)
Pitchbook as of December 31, 2020.
Exit count
200 0
...And an Epic Year for SPACs
Special purpose acquisition companies (or SPACs) became all the rage in the third quarter, giving technology startups another – and often earlier, easier, and quicker – path to go public. Nearly 250 SPACs were formed in 2020, five times more than in 2019, raising over $75 billion, a 580% year-over-year increase in value. In a first for the industry, early stage VCs such FirstMark Capital, Ribbit Capital, and Lux Capital became SPAC sponsors, enabling them to become “full-stack” funders of startups, from idea to public market debut. Home-buying startup Opendoor and digital sports entertainment and gaming company DraftKings were among the highest-profile technology companies to complete mergers with public SPACs in 2020. We take a deeper dive into the SPAC phenomenon in the Trends section of this report.
“Beyond the blockbuster listings, 2020 will be remembered for a series of experiments in the way private companies tap into public markets, from new IPO pricing mechanisms to blank-check mergers and direct listings.” - James Thorne, PitchBook
“Venture capitalists once viewed special purpose acquisition companies as ‘bottom feeders’ that they wouldn’t let near their startups. Now many venture investors see these SPACs as a viable option for their companies to go public.”
- Tomio Geron, WSJ Pro
2021 State of Ve nture Cap ital | 11
Trends » SPACS Become More Ubiquitous » China Is on the Rise » Enterprise Software Remains Strong » FinTech Portmanteaus Gain Steam » Consumer Breaks Out » Digital Health Hits Fast-Forward
2021 State of Ve nture Cap ital | 13 2021 State of Ve nture Cap ital | 13
SPACS Become More Ubiquitous
» Record Setting Year
» Impact on Venture Market
» The Boon or Bane of SPACs
2021 State of Ve nture Cap ital | 14
The creation of and investment in special purpose acquisition vehicles in 2020 shattered previous annual records. More than 250 SPACs launched last year, raising over $75 billion for potential mergers and acquisitions – both over four times the SPAC activity in 2019. SPACs offer companies numerous advantages compared to a traditional IPO, including the ability to raise capital more quickly and often with more certainty. Startups that go public through SPACs face fewer regulations and constraints because they are technically mergers. SPACs also entail less pricing risk, as price is determined early on as opposed to the night before a traditional IPO. Evidentially, many companies recognized the advantages of going public in this way, given the uncertainty of global markets amidst a global pandemic and contentious election.
250+
SPACs launched
$75B+ Raised
SPACs do have their shortcomings. For investors, SPACs can be risky due to their time constraints, the fact that the investment is made in a sponsor and not a company, and the limited supply of high-quality operating companies relative to sponsor vehicles. Although the SEC assures market participants that SPACs offer the “same rigorous disclosures” as IPOs, SPACs are much more susceptible to external influences, increasing trading volatility. Amidst the SPAC craze, venture firms are now launching their own SPAC vehicles. Venture firms have traditionally been long-term investors that focus on products that take years to develop and even longer to realize returns. SPACs could allow their companies to go public sooner, allowing them to sell their shares faster and generate quicker returns for limited partners. Alec Gores’s The Gores Group, Chamath Palihapitiya’s Hedosophia Holdings, and Bill Ackman’s Pershing Square Tontine Holdings have been at the forefront of the massive proliferation of SPACs, leveraging their track records and reputations to raise impressive PIPE funding as part of SPAC transactions and tapping the media to promote their blank checks. Reputable venture firms like Social Capital, FirstMark, Ribbit, Lux, Altimeter, Dragoneer, and General Catalyst have jumped on this trend and launched their own SPACs ranging from $300 million to $3.2 billion. More could follow suit.
Founded: 2017 Location: San Francisco, CA Investors: Oaktree Capital Management, Founders Fund, Forerunner Ventures, IVP, Thrive Capital, Redpoint Ventures, McKesson Ventures Hims, a telemedicine company, went public through its merger with Oaktree’s blank check company Oaktree Acquisition Corp. in January 2021. Valued at $1.6 billion, the deal will enable Hims to capitalize on the telehealth market’s global boom catalyzed by the pandemic. Looking forward, Hims CEO Andrew Dudum wants to expand the company’s focus beyond erectile dysfunction and hair loss treatments into diabetes, hypertension, cholesterol, fertility, and sleep health. Hims will use proceeds from the SPAC merger to accelerate its growth and mission of providing accessible and affordable healthcare to millions of consumers.
2021 State of Ve nture Cap ital | 15
China Is on the Rise
» Rise of the Chinese Consumer and the State of the Chinese Economy
» Hot Sectors in China
» Chinese Public Markets and US-China Relations
2021 State of Ve nture Cap ital | 16
Strong domestic policy support, resurgent industrial activity, and resilient exports supported China’s continued growth in 2020. The IMF estimates that Chinese GDP grew by 1.9% in 2020 – making it the only major economy to post positive growth for the year – and will achieve 8.2% GDP growth in 2021. Ten-year government bonds offer attractive yields on a relative basis in a zero interest-rate policy environment, and the Shanghai and Shenzhen equity indices closed positively for 2020. The Chinese consumer continues to rise alongside China’s economic growth, with average urban income rising to over $30,000. Since 2015, Chinese consumer spending has accounted for over 60% of GDP growth, while the household savings rate has remained elevated relative to the US and other developed economies. There are several trends driving substantial growth in hot sectors in Chinese VC. Increasing spending by consumers, growing penetration of mobile devices, and China’s support of new digital consumer habits have helped catalyze a flurry of investment activity across digital technology, e-commerce, and healthcare. And now, COVID-19 has accelerated the consumer shift towards online purchases and contactless fresh food delivery. Some of the largest EdTech deals (Yuanfadao, Zuoyebang, Byju’s, and Spark Education) and listings (New Oriental Education) have taken place in China and Hong Kong amidst a $430 billion market opportunity. China’s domestic cloud market also continues to grow rapidly, led by Alibaba Cloud, Tencent Cloud, and Baidu Cloud. ByteDance, valued at over $100 billion, continues to make strides in consumer internet through its personalized content recommendation backend infrastructure and short video frontend platforms Douyin and TikTok, the latter of which claims to have 800 million daily active users. Similarly, IPO activity for Chinese companies remains robust. Despite headline risk surrounding US-China foreign policy relations, 32 Chinese companies went public on US exchanges last year, raising $12.1 billion, despite US regulatory actions and US-China tech tensions. To put this in perspective, 100+ Chinese companies have listed on US exchanges, raising over $46 billion, since 2013. As China looks to promote domestic development in areas such as AI, energy storage, microelectronics, quantum computing and robotics, we are seeing a renewed push for listings on the mainland or in Hong Kong. Chinese companies with US listings are also evaluating secondary listings in Hong Kong, Shanghai, or Shenzhen as audit standards and compliance issues with US exchanges remain a flashpoint.
Founded: 2013 Location: Beijing, China Investors: Coatue, Matrix Partners China, Tencent, Sequoia Capital China, ZhenFund VIPKid offers virtual courses teaching English to children aged 4-12 years old. The online learning platform offers over five million classes each month and has enrolled 800,000 students in global classrooms. VIPKid offers both AI-based courses without teachers and a combination course of AI-based learning and teacher-led instruction at different price points. The company boasts teachers can work when and where they choose, making it an appealing option as the work-from-home trend continues. VIPKid has capitalized on the shift to online learning and aims to reach profitability in 2021. It hopes to benefit from a wave of large Chinese edtech financings in 2020, such as Yuanfadao and Zuoyebang.
2021 State of Ve nture Cap ital | 17
Enterprise Software Remains Strong
» Accelerating Adoption of Digital Technologies » Record Funding for B2B Startups » DevOps and Communication Tools Riding High
2021 State of Ve nture Cap ital | 18
The pandemic forced businesses to make immediate and significant changes to their day-to-day operations, dramatically accelerating the adoption of digital technologies to adjust sales tactics, cut costs, and facilitate the shift to remote work. According to a McKinsey & Company Global Survey, in just a few months’ time, companies accelerated the digitization of their customer, supply chain, and internal operations by three to four years. Against this backdrop, investments in enterprise software companies reached new records in 2020, raising $73.7 billion in venture capital in the US alone. Specifically, the DevOps ecosystem experienced another strong year as enterprises prioritized investments in software development and IT capabilities. DevOps is a set of practices that combines software development and IT operations in order to shorten the systems development cycle and provide continuous delivery with high software quality. Many companies have leaned on DevOps tools to address the growing complexity of IT and the shifting nature of work, while startups have seized the opportunity to monetize the growing ranks of software developers. Code management companies like GitLab and Postman rode this trend in 2020 and saw their businesses and valuations accelerate. Companies are also increasingly regarding communication, collaboration, and design tools as mission critical to their entire enterprise software stack. Tools like Airtable, Notion, and Figma have helped teams automate or streamline processes while improving transparency and efficiency. This environment bodes well for the growth of low-code and robotic process automation (RPA) software in the coming year.
Enterprise
DevOps Growth
IT
Founded: 2012 Location: San Francisco, CA Investors: Benchmark, DI Capital Partners, Thrive Capital, CRV, BoxGroup, Coatue Founded by Howie Liu, Emmett Nicholas, and Andrew Ofstad, Airtable is a cloud-based, all-in-one collaboration platform that blends multiple interface capabilities and the usability of a traditional spreadsheet with the functionality of a database. The platform consist of a software application with spreadsheet (grid), kanban, form, gallery, and calendar user interface options that can malleably store information. Businesses currently use Airtable for customer- relationship management (CRM), project management and planning, inventory management, applicant tracking, and more. Airtable’s mission is to democratize software creation by enabling anyone to build software tools to meet their needs.
B2B 2021 State of Ve nture Cap ital | 19
Fintech Portmanteaus Gain Steam
» DeFi: Decentralized Finance Transcends Cryptocurrency Price Action » FinLit: Financial Literacy and the Rise of the Retail Investor » eCommerce: Digital Payments Infrastructure Becomes Essential
2021 State of Ve nture Cap ital | 20
2020 proved to be a pivotal year for fintech, as the global pandemic and subsequent economic slump transformed the financial landscape for consumers and enterprises alike. According to PitchBook data, VC-backed fintech companies raised $41.7 billion last year, the second-largest annual total of the past decade. Secular fintech trends such as the blockchain-based decentralized finance movement, the proliferation of financial literacy products and services, and the accelerating global penetration of ecommerce all shifted into highgear last year. Institutional and corporate adoption of decentralized financial technology accelerated meaningfully in 2020, with more and more companies announcing significant commitments related to blockchain and cryptocurrency by the day. Coinbase recently announced plans to go public after recording $1.28 billion in annual revenue and $322 million in net income on 2.8 million monthly transacting users. Meanwhile, Tesla – formerly VC-backed and now an S&P 500 company – proactively purchased $1.5 billion in bitcoin and will accept customer payments in cryptocurrency. These shifts are ushering in a new model of financial infrastructure that may ultimately bypass traditional banking intermediaries. The growth of decentralized finance runs parallel to the rise of the retail investor. Leveraging tools like zero-commission trading (e.g., Robinhood), personal financial management apps (e.g., Albert, which raised $150 million across two rounds over the last twelve months) and investing/savings automation products (e.g., Chime, a neobank that raised over $1.2 billion across two rounds in 2020), consumers are taking control of their financial well-being and exerting unprecedented sway in the markets. Meanwhile, venture investments in payments-related startups jumped to $9.52 billion in 2020 vs. $8.36 billion in 2019 according to CB Insights. Increasing ecommerce penetration among both consumers and merchants is driving VC interest in this burgeoning space. Notably, investors doubled down on current market leaders like Stripe last year, prioritizing allocations to more established players. In Q3 2020, for example, 65% of venture capital invested in payments companies went to mega-rounds of $100 million or more, generally in growth stage companies.
Founded: 2012 Location: San Francisco, CA Investors: Union Square Ventures, Andreessen Horowitz, Ribbit Capital, Tiger Global, DFJ, Initialized Capital, Y Combinator, Battery Ventures, GGV Coinbase set out to achieve a goal that many considered radical at the time: to enable anyone, anywhere to send and receive bitcoin easily and securely. Today, the company’s trusted and easy-to-use platform serves as a gateway to the broader crypto-economy, with $90 billion in assets currently on its platform and over $455 billion in trades on behalf of its users. One of the most popular cryptocurrency exchanges in the world, Coinbase posted a banner year in 2020 and plans to hold a public offering this year. The company has 43 million verified users, counts 7,000 institutions as clients, and works with 115,000 ecosystem partners in over 100 countries.
2021 State of Ve nture Cap ital | 21
Consumer Breaks Out
» COVID-19 Has Transformed Consumers’ Lives » Accelerating Shift Toward Ecommerce Platforms » Consumer Exit Activity Reaches Record Levels
2021 State of Ve nture Cap ital | 22
The pandemic has transformed consumers’ lives, driving meaningful changes in behavior and preferences and, as a result, significant VC investment and exit activity in consumer-facing companies. Social distancing and stay-at-home orders accelerated the physical-to-digital shift that was already underway, rapidly pushing forward adoption timelines. For example, McKinsey & Company estimates there was a “10-years-in-8-weeks” jump forward in e-commerce deliveries and a 10x increase in 15 days for telemedicine. Companies with forward-thinking business models that catered to and capitalized on these consumer trends didn’t just weather the ensuing economic storm – many adapted and flourished. What’s more, there are signs that many of these new digital behaviors have become habits and will likely continue after the pandemic.
Founded: 2012 Location: San Francisco, CA
“COVID-19 is transforming consumer lives. We have covered a ‘decade in days’ when it comes to adoption of digital.” – McKinsey & Company
“Technology has helped us cope with this pandemic.” – Roelof Botha, Sequoia Capital Consumer-facing companies like DoorDash and Airbnb made some of the largest splashes in the public markets last year, raising $3.4 billion and $3.5 billion in their respective IPOs. Overall, a record 43 consumer companies went public in 2020, well ahead of the single-year totals from the five previous years. Other consumer-facing companies such as Instacart, Robinhood, and Chime also raised large rounds of financing to capitalize on increasing consumer demand. 2021 is already off to a strong start with the IPOs of Affirm and Roblox – with a robust pipeline of consumer companies poised to go public in the near-term, we expect it to be another eventful year for the sector.
Investors: Y Combinator, Sequoia Capital, Andreessen Horowitz, Thrive Capital, Kleiner Perkins, Khosla Ventures Instacart, an on-demand grocery delivery service, experienced skyrocketing demand during the pandemic and had to scale its operations rapidly as it became an essential service nearly overnight. Founder and CEO Apoorva Mehta says the pandemic catalyzed a massive shift not just in the grocery industry, but for the entire category of on-demand services. The company believes the grocery space is still in the early stages of digital transformation, and it continues to invest in sophisticated AI and data analytics to improve its product, from predicting which grocery items will be out of stock to how long it will take shoppers to find parking. With more growth on the horizon and several recent financing rounds under its belt, Instacart is eyeing an IPO in 2021.
2021 State of Ve nture Cap ital | 23
Digital Health Hits Fast-Forward
» Data Integration Across Health Systems Becomes a Priority for the Enterprise » Demand for Mental Healthcare Spurs Growth of App-based Solutions » On-demand Healthcare Infrastructure Provides Building Blocks for New Healthcare Services
2021 State of Ve nture Cap ital | 24
The pandemic caused stark changes to consumer health behavior, accelerating a long-term push toward on-demand/digital health while incentivizing companies’ adoption of technologies that improve operational efficiency in a world newly focused on convenient and effective remote care. As in-person visits with doctors, therapists, and other health professionals shifted online, platforms focused on remote, app-based care saw huge tailwinds in 2020.
Founded: 2015 Location: Burlingame, CA
Mental health headlined this broader trend with an almost 3x year-over-year increase in sector funding ($1.8 billion in funding across 55 deals in 2020 compared to only $609 million in 2019). Employer-sponsored counseling platforms Modern Health and Lyra were two key movers in the category, both achieving unicorn status and raising substantial up-rounds amid 100% user growth in 2020. Mindfulness apps experienced similar momentum, with Calm, Headspace, and Mindstrong each raising $100+ million as demand for their content ballooned alongside the stress of living in the pandemic. Consumer health brands and the ecommerce infrastructure underpinning them also saw rapid growth. Stay-at-home orders paved the way for heightened adoption of remote prescription and mail drug delivery from services like Ro, Hims, NuRx, and Alto Pharmacy, in turn boosting throughput at pharmacy backends and logistics providers like TruePill and ShipBob, respectively, to help these companies compete with “Amazon-like” fulfillment and delivery experiences. Amid changing consumer behavior, other healthcare enterprises also made big changes to enhance and adjust their operational models for the new normal. Providers and payers (including the government) invested in interoperability, compliance, and virtual care solutions, even in the face of uncertainty and tightened budgets. Companies in this area seeing outsized growth include those simplifying patient data exchange (e.g., Redox, Particle Health), enabling better patient interfaces and outreach services to be built atop existing health system data. As some patients return to traditional healthcare-seeking behavior, we believe the exposure of patients and providers to virtual care will have a lasting and positive impact on the trajectory of digital health adoption.
Investors: Venrock, Greylock, Breyer Capital, Addition, Meritech, IVP, Glynn Capital, Durable Capital, Fidelity Lyra Health is a digital health platform designed to transform mental healthcare through technology. The company’s platform connects members to a curated network of therapists and coaches through live video therapy, coaching, and digital self-care tools, resulting in faster access to care and better outcomes than traditional plans. This in turn enables employers to deliver care to their employees and families online with the flexibility of in-person care. Having reached unicorn status last year following a $110 million Series D fundraise, the company currently has over 1.5 million users.
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Conclusion
Persistence and Promise The venture industry’s momentum in 2020 is likely to persist through 2021, especially if the pandemic subsides following the world-wide rollout of vaccinations and the US economy remains stable. Some have even floated the idea that our post-vaccine world could resemble the Roaring Twenties, when economic growth flourished following the end of World War I and the last major global pandemic. We can hope. Venture investment is expected to remain high given the low interest rate environment, the vast amount of dry powder in the market, and the fact that the two main sectors for VC investment – technology and healthcare – have only grown in importance during the pandemic. IPO activity is also expected to remain strong given the pipeline of mature technology companies looking towards their next stage of growth in the public markets and the significant, growing number of SPACs looking for acquisition targets. As the current generation of disruptive companies increases in scale, valuation, and importance, exits are similarly expected to grow in number and value, in turn fueling investors’ interest and ability to fund tomorrow’s next great startups.
“We think about it as the new normal. The biggest revelation for me is the size of the outcomes really supports the quote-unquote frothiness in the cycle. In many ways, what was irrational a couple years ago is now much more rational today because of what we’re seeing on the exit side. Previous ‘category-defining companies’ used to typically exit at $1 billion to $5 billion, but now those outcomes are $10 billion to $30 billion or higher. The magnitude of the exits is not driven so much by the stock market but by the revenue scale and the growth rate of these companies. I don’t see it nearly as cyclical as past cycles.” - Chirag Chotalia,Threshold Ventures
“The tailwinds for biotech & pharma due to renewed interest in vaccines and antivirals may last for years. Other silver linings for sector trends include the acceleration of consumer adoption of e-commerce and delivery and the shift to a distributed workforce model. Many of these trends could persist even in a post-pandemic world.”
- NVCA Pitchbook Q4 2020 Venture Monitor
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Conclusion
About TrueBridge Capital Partners Established in 2007, TrueBridge Capital Partners is an alternative asset management firm focused on generating superior returns in the venture capital industry. TrueBridge identifies and invests in high-performing, access-constrained venture capital opportunities that generate premium value for its partners. TrueBridge prides itself on a data-driven approach to investing in both venture funds and venture-backed companies. The firm regularly gathers, analyzes, and publishes information about the venture industry and trends at truebridgecapital.com. The firm is recognized for its longstanding partnership with Forbes to produce The Midas List, an annual ranking of technology’s top investors, The Midas List Europe, and The Next Billion Dollar Startups. The State of the Venture Capital Industry is an annual market analysis of key venture capital industry trends spanning fundraising, investments, valuations, exits, and returns. Follow @TrueBridgeCP for the latest updates and insights.
Investment Team Contacts Edwin Poston General Partner
Mel Williams General Partner
Rob Mazzoni Partner
Andrew Winslow Principal
Mindy Isenstein Vice President
eposton@truebridgecapital.com
mwilliams@truebridgecapital.com
rmazzoni@truebridgecapital.com
awinslow@truebridgecapital.com
misenstein@truebridgecapital.com
Kate Simpson Vice President
Caleb Ollech Senior Associate
Kris Martin Associate
Liam Quinn Associate
Malik Epps Associate
ksimpson@truebridgecapital.com
collech@truebridgecapital.com
kmartin@truebridgecapital.com
lquinn@truebridgecapital.com
mepps@truebridgecapital.com
A note about the data referenced throughout this report: We acknowledge that there are numerous sources of industry data that may differ materially in methodology, breadth, and statistics. We regularly review these sources and, over time, may change the sources we cite. In this year’s report, we primarily reference Pitchbook for fundraising, investing, valuation, and exit activity.
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