Private Markets Year in Review: 2020 Venture Capital Investments

Despite an initial pause in deal making due to the pandemic’s impact in the first half of 2020, venture capital (VC) funding surged to a record high in the fourth quarter.

Venture Capital Investments Surged in the Fourth Quarter

Fourth-quarter investments saw a 75.6% increase in the amount raised since Q1 and closed 52.0% higher than Q4 2019. The number of VC mega rounds, rounds greater than $100 million, have also reached new levels. Q4 alone had 223 mega VC rounds that totaled $54.1 billion in capital raised. Mega rounds have reached their highest levels in Q4 over the last 10 years.

APAC growth was a significant contributor to the rising dollars invested. APAC portfolio companies represented nearly 37% of investment value over the last three years, while EMEA represented just 15%. In Q4 alone, 42.6% of venture capital (totaling $39.2 billion) went to companies headquartered in the Asia Pacific region. Frequent participation at high values from Sequoia Capital China Advisors and Tiger Global Management fueled APAC’s 2020 investments with Sequoia investing $12.9 billion and Softbank $12.5 billion in 2020.

The Technology Services Sectors Dominated

The technology services sector continued to accumulate the most capital from VC investors. Airbnb’s Series H round led by Silver Lake and TPG amounted to $1 billion, and now defunct Quibi raised $750 million in March with Series A financing from Alibaba and Pegasus Tech Ventures. Stripe, with a reported $36 billion valuation, raised $600 million in April from Sequoia and General Catalyst, among others.

Notably, the health technology sector prospered with its VC investment amount nearly doubling from $6.2 billion in Q4 2018 to $12.4 billion at the end of 2020. The largest health technology round was announced in May 2020, when MGI Tech, a Chinese manufacturer of gene sequencing devices, raised more than $1 billion in funding led by IDG Capital and CPE. Shortly after, the Seattle-based Sana Biotechnology raised $700 million from ARCH Ventures and Flagship Pioneering in its initial financing round. The proceeds are to advance the company’s program to create and deliver engineered cells as a treatment for different disease types.

Resilience raised nearly $800 million in November to transform the way that drugs and therapies are manufactured in response to COVID-19. ARCH Ventures LP and 8VC led the Series B financing with participation from GV Management Co LLC and New Enterprise Associates Inc.

Corporate Investors Increased Their Participation

The high level of VC-backed funding wouldn’t be possible without participation from corporate investors. Both public and private corporations have upped their participation and their contributions as indicated by the VC investment data over the last three years. Over 5,000 corporate firms participated in VC financing rounds in 2020, an increase of over 800 from 2018. Alphabet participated in Waymo’s $2.25 billion mega Series A round. Jack Ma’s Alibaba has 84 active VC portfolio companies and competitor JD.com has 54, but they are far behind Tencent’s portfolio with 232 active VC investments. In the U.S., notably, Mastercard nears the top of the list with 45 portfolio companies and Alphabet has invested in 31.

Exits: IPOs and SPACs

There were 204 VC-backed companies that went public through an initial public offering (IPO) this year, amounting to $40.9 billion in exit value. China’s JD Health had the largest IPO on the Hong Kong Stock Exchange at $4 billion. JD Health reached unicorn status just one year after its launch, and then raised an additional $830 million in Series B financing from Hillhouse Capital announced in August. Snowflake followed closely behind with a $3.8 billion exit when it listed on the New York Stock Exchange in mid-September.

As offerings by special-purpose acquisition companies (SPACs) spiked at record rates in 2020, we’ve already seen more VC companies pursue the SPAC route for going public. In Q4 alone, 11 VC portfolio companies completed their SPAC mergers, raising collectively $25.8 billion for venture capital investors. Large Q4 SPAC offerings QuantumScape (market cap: $20 billion) and Luminar (market cap: $10 billion) both raised over $3.5 billion.

Conclusion

With VC funding at all-time highs and promising valuations in the public markets, large investments will continue to grow in technology services and health technology. Looking ahead, more non-traditional investors are actively building out investment strategies that will support strong VC funding. Traditional PE and VC firms maintain high dry powder levels and are eager to invest and expand their portfolios.