Throw VCs a Lifeline, Because They’re Drowning in Cash!

In case you thought this wasn’t a great time to seed your startup with venture capital (VC) dollars: You’re flat wrong. According to recent data compiled by PitchBook, capital market data and intelligence solutions company, investors are paddling around in more money than either Jeff Bezos or his administrative assistant, God.

According to this data, new capital is being fire-hosed into the VC market at an unprecedented rate. Apparently, 2020 already set a new record in terms of funding and deal valuation. But 2021 is only three-fourths over, and it’s already blown 2020 out of the water.

If you’re unsure how the VC market works, PitchBook explains it well, saying it’s a circular engine where “investors back VC funds, which deploy capital to back startups, which—if all goes well—grow and are sold or go public, producing cash returns that are plowed into still more fundraising.”

But that all starts with VC companies that work to raise initial globs of capital. And those globs were huge in 2020, coming in at around $85.5 billion across more than 660 funds. But according to PitchBook’s NVCA Venture Monitor, 2021 has already hit around $96 billion across more than just 520 funds, and there are still three months left in the year.

Because 2021 is dunking on 2020 so hard over a smaller number of funds, there’s a larger number of what PitchBook calls “mega-funds.” Even the average fund’s size is around $195 million, and that’s a larger number than ever. PitchBook believes that at the current rate of growth, VC fundraising could hit $100 billion for the very first time. It’s an ever-growing mountain of money that VCs are scrambling to invest.

If you’re now pen-in-hand looking to scribble your first business plan, know that the best market in which to score a honking VC check is no longer in consumer electronics. Forget your mobile augmented-reality game: The big money these days is in B2B technologies, especially all forms of data handling, anything related to remote access and hybrid work, and, of course, the always-needy cybersecurity sector. In these areas of enterprise technology, PitchBook says, the average fundraising round has jumped from $16.8 million last year to $27.7 million this year.

The big vertical winners in this category are burgeoning fintech firms—mainly the suddenly blossoming digital bank space populated by startup darlings such as the UK’s Monzo. Mobile payment platforms such as Venmo are also popular, as are startups that add security or other customer niceties to current payment platforms.

PitchBook says that one reason behind this money surge is the “tourist investor.” That’s its name for non-VC firms that are suddenly muscling into the startup funding space, typically organizations like asset managers or hedge funds. These folks don’t mind spending bigger bucks than traditional venture capitalists, so that’s part of why deal valuations are suddenly so much higher.

And damn, are they ever higher. Aside from 2021’s massive bump over 2020 in overall capital raising, the size of individual deals has ballooned as well. Last year’s median deal value was around $7 million, but this year it’s around $10 million. On really big deals, which PitchBook defines as anything over $50 million, the median value has frog-vaulted to $800 million compared with last year’s $446 million.

It’s a brave (and rich) new world in VC funding, and business-focused technology firms are a big part of that growth. Another driver is that more VCs are working their magic on a global scale rather than focusing solely on US startup hubs such as Silicon Valley.

A Rocketing Rise in Deal Valuation

(Chart via PitchBook)