Deep Dive: PwC and CB Insights' Q4 2020 MoneyTree*
*All graphs and figures are taken directly from the report.
Despite the pandemic, U.S. venture funding levels reached new heights in 2020. The record-setting total of $130B invested over the course of the year was broken down into 6,022 reported rounds (see graph). While the latter figure makes 2020 the third year in a row of a declining number of annual rounds, is it not a far cry away from the second-highest figure to date, which was set in 2018 at 7,052 rounds. Q4’20 produced the second-highest total funding amount to-date at $36.7B raised over 1,549 rounds.
2020’s funding levels were carried by its strong second half, which more than compensated for the pandemic-induced crunch in Q1 and Q2. Yet not all stages saw the same buoyancy; seed funding rounds experienced a large decline in activity, down to 400 rounds per quarter from an average of 610 in 2015. Series A rounds also continued declining in incidence. In general, later-stage rounds saw upticks. Specifically, series B funding rounds have become more common. Additionally, even the median size of latest-stage rounds (series C+) have continued to grow (see graph).
This was driven by VC's continued emphasis on mega-rounds ($100M+), which totaled 318 in 2020 and brought in a historical record of $63B. Nearly half of 2020’s funding came from mega-rounds, up from 44% in 2019 and well above the 25% they brought in in 2015 (see graph). Q4 alone set a new record of 99 mega-rounds in one quarter, raising $18.1B. The preeminence of mega-rounds in U.S.-based venture capital has been in effect since 2018.
Internet startups’ popularity among investors persisted in 2020, with $15.3B in dollar flows over 687 deals reaching their coffers in Q4 alone. This was the single-largest sector, followed by healthcare with $8.5B in capital raised over 244 deals. Meanwhile, by breaking down categories somewhat further, it becomes clear that biotech is the hottest vertical, followed by accounting/finance and monitoring/security (see graph). All top verticals saw boosts to their dollar volumes in Q4’20.
With 28 freshly minted unicorns in Q4, the U.S. population of startups valued over $1B has reached a total of 225 active companies. Their aggregate value reached $659M in 2020, up some $24B YoY, and constitutes a new historical record. Instacart (valued at $18B) joined the top unicorns, which are led by SpaceX ($46B) and Stripe ($36B).
M&A has been on a downward trajectory since 2018 and totaled only 653 deals in 2020. Still, Q4 set a new record of 210 deals in one quarter. The bigger story is, of course, the massive IPO spree that 2020 brought on, which set a new record of 147 fresh offerings. Q4 alone saw 61 of these debuts, and also saw the median age of the newly listed companies decline to 6.5 years old (see graph). Conversely, the median number of years a company requires before being acquired grew to 7.2 years. The total number of exits also set a record of 271 deals.
By viewing funding geographically, the San Francisco Bay Area continued to dominate the landscape, but actually saw a decline in its capital flows in Q4 (see graph). Still, the majority of the top metro areas either experienced growth, or at least maintained their previous levels of capital raised. Four saw their investment totals double QoQ. The top three states (California, Massachusetts, and New York) raised a royal of 74% of the country’s entire funding haul.
For the second time (the first being 2019), emerging investment areas brought in a majority (53%) of funding. Four specific areas towered over all others in deal activity: fintech, AI, digital health, and medical devices (see graph). At the same time, three emerging areas (supply chain tech, autotech, and smart cities) saw their funding levels more than doubled in Q4’20. In the case of autotech, the 17 deals and $2.5B in Q4’20 needed to compensate for the poor showing in the previous three quarters. The vertical finished the year with $3.3B in total raised over 41 deals. The latter figure continues a long-term decline. Perhaps, as I wrote about earlier this week, autotech companies are now more focused on moving into public markets and no longer feel the need to raise venture capital.
Naturally, such an idea has not dampened fundraising at the top VC firms, which brought their dry powder levels to an aggregate $1.1T in 2020. Andreessen Horowitz led the pack in new fundraising with $11B, while SOSV came out ahead in terms of total investments with 92 in 2020. Sequoia was most active in Q4’20 with 35 deals.
Did you enjoy reading this feature? To gain access to all my premium content, upgrade to Inside VC Premium for either $10/month or $100 billed annually. For a limited time, we are offering a 14-day free trial of premium. Click here to sign up! (Other recent premium features included Silicon Valley’s Impossible 2020 and What Happens Next, a Pitchbook report on LP cash flow, and more.)