Nothing ventured, nothing … There have been historic gains in venture capital (VC) this year. And we still have over a month to go.
This year is on track for a record in venture capital fund raising. VC investment, over this year’s first nine months, has eclipsed the record of $166.4 billion set in all of 2020 by more than 43%, according to accounting and consulting firm EisnerAmper.
Venture capital exit value (where the companies the firms have invested in go public or get sold privately) in this year’s third quarter alone was greater than the full-year exit values in every year during the past decade, except for 2019 and 2020, EisnerAmper reported.
The VC valuation expansions, analysts say, are propelled by a rise in valuations owing to institutional and other large investors shifting out of once-hot hedge funds into another alternative asset that, let’s face it, isn’t very liquid.
Another factor is that public pensions funds have more money to play with, per Pew Charitable Trusts. That’s the result of an increase in assets of more than $500 billion in state retirement plans, thanks to investment returns of 25% and up in fiscal 2021 (ending June 30) and sizable increases in pension contributions from taxpayers and public employees. VC, along with its cousin private equity, are the best-performing alts.
When Lemonade, a mobile-based insurance startup, went public in July 2020, at $29 a share, it shot up to almost $150. While the stock has since backed off that high, it still is up 66% post-debut. Original venture investors were Silicon Valley stalwart Sequoia Capital and Israel-based Aleph. Today, Lemonade is trading at 45 times trailing 12 months revenues, said Don Butler, managing director at investing firm Thomvest Ventures.
Pitchbook research found that cryptocurrency/blockchain had the largest valuation boost thus far in 2021. Take Open Sea, a marketplace for digital assets, which was valued at $1.5 billion in its latest venture fund-raising round in July, led by VC firm Andreessen Horowitz. Pitchbook said this was more than 19 times the value the company reached after its previous VC influx.
Other notable valuation jumps in that sector—which promises to transform the internet—were CoinList, Element Finance, and MobileCoin, each climbing more than 10 times their previous levels.
Cybersecurity has been another hot area, what with a host of cyberattacks bedeviling the world. Big valuations hops were seen with Horizon3.ai and Lacework. Their values rose by more than 10 and 15 times, respectively.
Another strong segment that VC investors have favored is digital health care, Pitchbook noted. Reify Health, which focuses on decentralized clinical trials, rose 12.4 times its original value. And the weight loss management app Noom’s value expanded almost 11 times to $4.24 billion.