Venture capital investment surpasses $ 621 billion to set record in 2021

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While 2021 already stands out with a series of historic highs for the S&P 500, the world of private finance for startups and other private companies has also reached numerous highs in the past calendar year.

Globally, venture capital funding set a record in 2021 with $ 621 billion in combined deals, more than double the $ 294 billion in 2020, CB Insights said in its “State of Venture ”published Wednesday.

That total was fueled by a record 1,556 rounds of venture capital funding worth $ 100 million or more, well surpassing the old record of 620 as of 2020.

The number of private companies valued at $ 1 billion or more rose 69% in 2021 to 659 amid rapidly rising valuations for late-stage venture capital deals, CB Insights reported.

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Mergers and acquisitions also hit a record 10,792 deals in 2021, up 58% from 2020, as the tally crossed the 10,000 mark for the first time.

As the growth in the number of new specialist acquisition companies began to slow, SPACs overall increased their median exit value to $ 1.6 billion in 2021, about three times their median entry valuation. on the stock market for $ 547 million.

Fintech, or fintech companies, raised $ 132 billion in 2021 and accounted for 21% of all venture capital dollars, as the most popular type of venture capital transaction. Total fintech increased 169% compared to 2020.

“Fintechs also had the highest proportion of early stage deals of any industry, indicating that the industry is ripe for a boom in 2022 and beyond as startups mature,” CB Insights said. .

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With 328 deals, Tiger Global ranked as the world’s largest venture capitalist in 2021, followed by 314 investments by SOSV, 276 for Sequoia Capital China and 240 transactions each for Andreessen Horowitz and Insight Partners.

Markus Bolsinger, co-head of private equity practice at Dechert, told MarketWatch that venture capital firms and other private equity investors are increasingly drawing capital from pension funds and others. sponsoring partners seeking yield in a low interest rate environment.

Assets under management of private equity and venture capital funds have grown on average at rates of around 10% and are expected to continue at that rate for now. Meanwhile, assets under management dedicated to growth equity investments in more mature companies that are past the start-up phase have grown by around 21% per year across the board, he said.

“That’s where a lot of the money and the talent goes,” he said, referring to the faster growing equity compartment.

Bolsinger said that one of the reasons private capital outperforms public stocks over time is that private companies have more finely tuned boards.

“The private equity model is the top governance model,” he said. “It’s their job to make sure a business is doing well. They don’t just show up to quarterly meetings to review profits.

The record number of M&A deals reflects the need for private investors to leverage the growing amounts of capital from their institutional investors, he said.

“The capital has to be deployed,” he said.

For its part, Dechert has seen no decline in its M&A pipeline through 2022. “There is no slack” from record M&A levels of 2021, Bolsinger said.

Martin Nussbaum, a Dechert partner who works on transactions with private companies, said investors are looking for private fund vehicles that offer more attractive returns than stocks or traditional bond funds.

“The low cost of debt financing and its availability have enabled funds to offer attractive prices to businesses without penalizing [investment returns] for acquisitions, ”Nussbaum said.

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