Despite a pandemic that sparked a global recession, 2020 was still a record year for venture capital investments into American startups.
According to data shared by PitchBook and the National Venture Capital Association, investors poured $156.2 billion into domestic startups last year, or around $428 million for each day of the year. The huge sum of money, however, was itself dwarfed by the amount of liquidity that American startups generated, some $290.1 billion.
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The exit-value figure was a record as well, as were the 321 rounds worth $100 million — nearly one for each day of the year.
But while the U.S. venture capital market in 2020 was hot, it was not newly so. In 2018 and 2019, VCs invested around $140 billion into domestic startups, making last year’s $156 billion result a record, but not a shocking departure from previous years.
A first read of the data indicates that the U.S. venture capital market is still getting larger in scale and later-stage in focus. But inside those well-worn trends are a host of notable movements that both underscore what we observed last year in real-time and teach us something new about today’s venture capital market.
So far, 2021’s startup financing and exit market appears to be the mirror of what we saw in late 2020. So we’d best understand the past so we can forecast what we’ll see in Q1 of 2021.
To avoid getting too lost in the data, we’ll proceed by stage, pulling out key facts for each step of the startup lifecycle. Feel free to scroll to the one that makes the most sense for where your company is or where your fund invests.
Seed
In the U.S., seed deal count was high in 2020, around 5,227 per PitchBook’s estimates. Those rounds were worth just over $10 billion, making it the third year in a row in which American seed-stage startups managed around $10 billion in capital against around 5,000 rounds.
Boring, yeah? Not really. Inside those numbers are the whole year’s ups and downs: The fact that the seed data is so close to 2018 and 2019 levels is almost silly.
The real surprise from seed, per PitchBook’s report, is that these valuations actually fell on a year-over-year basis in 2020. This, despite the fact that seed deal sizes rose.
Considering these two trends at once, it appears likely that, on average, VC ownership as a percentage of seed-stage companies rose in 2020.
Frankly I was just surprised to see a form of startup valuation decrease after expanding for nearly a decade.
Early stage
If seed was strong, early stage was weaker. Just 3,572 estimated rounds worth $41.8 billion for American startups in 2020. That’s down from 4,000 rounds and $47.2 billion in 2019. PitchBook does note that Q4 was stronger than other periods in the year, but, still, a down year is down.
But despite the falling number of deals and dollars, average and median sizes of early-stage rounds reached all-time highs in 2020. And early-stage rounds worth $25 million or more were worth an all-time high of just under 66% of all early-stage round value in the U.S. during 2020.
So, later and larger is the theme yet again, even when it comes to early-stage startups.
Late stage
As you anticipated, late-stage deals were hot in 2020. With all-time high estimated deal volume of 3,454 and more than $104 billion invested, big startups had a crushing year.
Even more, estimated deal counts for 2020 show that the year ended well for late-stage startups. This matches what we expected, given how busy the final months of last year were with huge investments.
The average late-stage investment rose to $565.9 million, while the median expanded to $76.9 million. This is the golden age of late-stage fundraising. Roll over early-unicorn era, this is the real feeding trough for big, private companies.
There’s a lot more data in our inbox to study. We’ll take at least a deeper look at fintech investments this week, along with some notes on European startup investing trends and what we can garner regarding China and India. I’d also love to get my hands on any and all data related to startups on the African continent.
But before we close, a few final notes on the American startup scene’s last year:
- Inside deals did expand in 2020: The percentage of American venture capital deals that were led by a prior investor reached 9.9% in 2020, up from 8.8% in 2019. So around one in 10 was an inside round. Can this figure reach double-digits in 2021?
- Exits did spike in the second half of 2020: After a few quarters of exit volume around the $20 billion range — far too low for VC math to pencil out — the value of VC-backed companies finding liquidity jumped to around $100 billion or more in both Q3 and Q4 of last year. Let’s see if that keeps up in Q1 2021!
- Boston shines: Most major startup cities saw their deal volume fall in 2020, per reported data in the PitchBook dossier. Many still saw more dollars invested during the year. However, Boston managed more deals (846, +2.7%) and dollars ($16.9 million, +47.6%) last year. This matches what we observed in our series looking at Boston’s recovery in 2020 from pandemic-lows.
And that’s a first look. What a year. And how surreal to see it laid out in such simple terms after being so turbulent to live through.
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