Insight

Venture Pulse Q4 2021

The Q4’21 Venture Pulse report provides insights around trends, opportunities, and challenges in the U.S. venture capital market.

Conor Moore

Conor Moore

Partner, National Leader, KPMG Private Enterprise, KPMG US

+1 415-335-8401

The VC market in the U.S. finished the year on a high note, setting a fourth consecutive record for VC investment in Q4’21, propelled by $1 billion+ funding rounds by thermonuclear power development company Commonwealth Fusion Systems, food delivery and consumer good company Gopuff, space tourism company Sierra Space, cybersecurity firm Lacework, and e-commerce aggregator Thrasio.

Fundraising soars past $100 billion

Fundraising activity in the U.S. climbed well above $125 billion in 2021, significantly higher than the previous high of $85 billion seen in 2020. A number of factors have contributed to the rise, including a growing number of LPs – such as endowments, university funds, high net worth individuals, and family offices – increasing their allotments dedicated to the VC space. The strong demand and readily available capital has shorted the time required by many VCs to close new funds from two or three years down to twelve to eighteen months. This has naturally led to the more rapid introduction of new and follow-on funds.

The increase in fundraising in the U.S. has driven a number of additional trends during 2021, including an increase in specialized funds – such as the $2.2 billion crypto fund raised by Andreessen Horowitz in June. As of the end of Q4’21, the fund was fully deployed. Proven fund managers have also increasingly taken the strong fundraising environment as an opportunity to leave larger VC firms to create their own niche funds.

Fintech poised to start seeing consolidation

VC investment in fintech remained quite strong in the U.S. in Q4’21, led by a $735 million raise by embedded investing company DriveWealth. While areas like wealthtech and insurtech remain big ticket areas of VC investment, more developed subsectors – like digital banking – are beginning to get saturated. Digital banks are also seeing greater competition from traditional banks as they get smarter and embrace technologies to address their customers’ changing needs. The sector will likely start to see some consolidation as the larger digital banks thrive and others find themselves challenged to survive.

Exit activity in the U.S. rises to major new height

Exit value in the U.S. closed out 2021 almost three times higher than the previous peak of $289 billion seen in 2020, while the number of exits also reached a record high. While IPO activity is expected to remain high, the fervor for SPAC transactions has continued to lessen as of Q4’21. Over the last quarter, a number of companies that were considering SPAC mergers have stepped back their plans, while others have decided to hold back going public until they are ready for a more traditional IPO.

Definition of cleantech evolving, driving more interest from VC investors

Over the past twelve months, the definition of cleantech in the U.S. has evolved dramatically, moving far beyond the building of windmills and solar farms. In today’s investment environment, cleantech encompasses everything from software to measure and monitor emissions outputs to mechanisms to utilize resources more efficiently. These less capital-intensive forms of cleantech are generating significant interest from VC investors – both from a risk and a cost perspective.

This combined with the increasing global consciousness for climate change, an enhanced willingness on the part of companies to invest in climate change solutions, and the range of climate-friendly initiatives included in the U.S.’s Q4’21 infrastructure plan will likely continue to drive cleantech interest heading into 2022. Longer term, the infrastructure plan in particular could also spur a new era of investment in highly innovative infrastructure solutions – like electrified roads.

Trends to watch for in 2022

VC investment in the U.S. is expected to remain very strong in Q1’22, with areas like healthtech, B2B services, and cleantech gaining additional momentum. Proptech is also expected to see growing interest.

The IPO market in the U.S. is also expected to remain robust, however, the number of IPOs could fall from 2021’s peak as companies increasingly focus on IPO quality and readiness over speed. One sector to watch in 2022 will be fintech; given the growing size and maturity of some U.S.-based privately held fintechs, IPO exits could soon be on their horizon.

The reality is that companies are just starting to fully appreciate the difficulties associated with managing remote or hybrid workforces — and that’s on top of the challenges they already face attracting and retaining required talent in the first place. Companies able to simplify and help with different parts of the HR and people management process are going to be in high demand. This is no doubt going to lead to increasing VC investment in HRtech here in the U.S. and globally.
— Conor Moore, National Leader, KPMG Private Enterprise

In the U.S. in Q4'21

VC hits record $88.2 billion invested across 3536 deals

Annual median deal size for D+ rounds, surpasses $105 million

Fintechs pull in 4 of the largest 10 deals

Corporate VCs invest over $37 billion in Q4 – capping record year

Annual fundraising reaches new heights over $128 billion

 
Source: Venture Pulse, Q4’21, Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, December 31, 2021.

 

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About the Pulse Series

The Pulse Series of reports—Venture Pulse and the Pulse of Fintech—analyze the latest global and regional investment trends and insights. Included in the reports we provide perspectives and analyses on the lifecycle of venture capital investments as well as overall fintech investment across the Americas, Europe, and Asia. In each report, we share the latest valuations, financing, deal sizes, mergers & acquisitions, exits, corporate investment, and industry trends.

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