Venture Capital Benchmark

Q1 2021

North America, Europe and Latin America.

Welcome To the Status 
of Venture Capital Report 
Q1 2021

Join us remotely February 22nd - 26th to learn how your  startup can build a repeatable playbook to acquire, retain & grow customers.

We will be breaking down VC activity in the US, EU, and LatAm and what it means to you as an investor or founder. After going through extensive market intelligence from the industry's most trusted sources, here’s the top-line review of what went down in the VC world last quarter…

But First...

Welcome To The NFT Craze!

NFTs or “Non-Fungible Tokens” have exploded in popularity over the past 4 months. They will no doubt have the potential to disrupt some stagnant markets.  Recently, the artist Beeple had his famous “The first 5,000 days” auctioned off at Christie’s and sold for a staggering $69.3 million.

Beeple's collage, Everydays: The First 5000 days, sold at Christie's. Image: Beeple

Q1 in a nutshell

All-time record number of funding and unicorns minted - Covid is definitely not stopping the growth!

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This Growth Is Likely Due To The Stabilizing Covid Situation

Particularly in the United States, which has yet to experience a major economic fluctuation. The emerging and existing startups operating within growing sectors that have not been affected by COVID and might even have benefited from it and accelerated their growth are also a likely contributor to these numbers.

High Growth Sectors

Growth In VC Activity Was Particularly High Within A Few Key Sectors

Namely: delivery, robotics, logistics, automotive, fintech, and cloud computing. These sectors have been adversely affected by COVID and have shown their resilience to this pandemic. Automotive is a curious outlier, however, with the massive uptick in electric vehicle spending, it comes as no surprise that VCs will look to fund the next Tesla.

Rise in Amateur Retail Investment

This Growth Is Likely Due To The Stabilizing Covid Situation

With the rollercoaster of a ride that was Robinhood and GameStop this year and the rise of the amateur retail investor, fintech has seen a resurgence in funding and much can be said about the SPAC boom. Companies looked to consolidate and compete and with SPAC deals arising left & right, hitting records not seen since the 1980s, it is no wonder that the public markets have momentarily benefited.

Deal counts picked up in Q1

Even Though They Continued To Drop Overall Vs. Q1 2020 As Investors’ Flight To Quality Continues

VC market also followed the public market, particularly in later-stage VC - Series C and later rounds – that grew by 262% over Q1 2020. Aggregate deal values are starting off with a blast in 2021. Deal counts picked up in Q1 but, are still dropping compared to Q1’20. This is to be expected as investor’s battle for quality and the VC industry becomes ever more competitive.

Funding in Q1 has overtaken Q4'20

At $90B, Makes Q1 The Biggest Quarter In Investment Dollars Ever

Declining deal counts have risen

Compared To Q4’20, This Year Has Seen A Rise Of 26% In The US And Up 17% In Europe

However, across regions and stages deal counts declined in Q1’21 compared to Q1’20 as the total deal counts across the United States and Europe were down 13% and 28% respectively.

What Does This Mean...

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The declining deal count is due to data shown for the companies that have been able to use the pandemic lockdown to their benefit and actually significantly grow their business.

The macro-economic situation, whilst far from perfect, has also been stabilized with the rapid rollout of vaccines and with the Federal Reserve stating that it would not raise interest rates until 2024.

Let’s Look At The Numbers….

Usa vc landscape in Q1 '21

In The USA, The VC Dollars Invested Skyrocketed To 217%

Europe vc landscape in Q1 '21

Europe Seems To Be Riding The Upward Trend That We Saw In The USA

LatAm vc landscape in Q1 '21

In Latin America, The VC Dollar Invested Has Increased By 102% Since Last Quarter!

Valuations will inevitably take a hit in the short/medium term

This is further accelerated by the public market crash which is causing revenue multiples to drop.

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  • Nubank - $400M Series G funding round, bringing total valuation to $25B. The round was led by GIC, Whale Rock, and Invesco, with contributions from Tencent, Dragoneer, Ribbit Capital, and Sequoia.

  • Loggi - $205M funding round led by CapSur Capital.

  • MadeiraMadeira - $190M funding round led by SoftBank Group.

  • dLocal - $150M investment round led by Alkeon Capital. Bond, D1 Capital Partners, and Tiger Global also participated in the round, which brings the startup’s valuation to $5B.

Something To Keep An Eye Out For:

SoftBank has requested authorization from the SEC for a $200M SPAC that will be exclusively focused on Latam tech startups. The SPAC is backed by Citigroup and J.P.Morgan who are book-runners on the deal.

Diving Deeper Into The Stages Tells Us What’s Happening At Ground Level…

Seed funding

At $2.7 Billion, Seed Funding In Q1 Was Up 8% Since Last Quarter

The Industry’s Transition To Digital Dealmaking Has Been Relatively Steady

As people become accustomed to the new norm, however, investors have ultimately closed roughly 55% less deals than in Q1 2020 and 12% less than last quarter of Q4 2020.

Current Figures Show A Decline In First-Time Financings

Relative to the past several years. This goes to show how the VC market is shifting towards extracting value from “kindergarten” startups that have high potential as they invest larger amount of capital for higher valuations.

VC perspective...

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  • As deals continued to decrease at seed stage, median and average deal sizes at these stages continue to reach new highs.

  • This is because investors are capitalizing on earlier deals in order to be compensated with a higher future return by taking larger stakes in the deals. The emergence and greater importance given to early stage specialist funds is a clear demonstration of this upcoming trend in the industry.

Early-stage is also doing extremely well

Early-Stage Deal Activity Started Remarkably Strong In 2021

Side note

The Recent $290 Million Series B By The Much Loved Gorillas Has Elevated The Company To Unicorn Status

It is one of the fastest companies to become a unicorn, achieving its status in a mere 10-months! Another indicator that the delivery sector, whilst consolidated, is still open to innovation and significant investor capital.

VC perspective...

The remarkable upwards trend in Early-stage Q1 funding comes as no surprise.

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  • Many verticals and companies are returning to pre-pandemic levels of traction as many are adversely affected by the ongoing pandemic and the constraints it brings.

  • Series A valuations have also skyrocketed, which presents a unique new opportunity for micro-VC funds to access larger cash-on cash multiples and, ultimately, larger multiples on invested capital.

  • These pre-seed/seed-stage investments might also go as far as to mint new institutional firms that will be specialized in micro investment opportunities that have the ability to grant phenomenal returns.

Late-stage funding

Meanwhile… Late-Stage Funding Is Not Merely Riding The Wave… It IS The Wave!

The strongest by country mile

Late-Stage VC Is The Strongest Segment So Far Of The Venture Ecosystem In 2021 And By A Long-Shot

We saw an uptick in both deal value and count for these mature startups, while totals for the rest of the market were flatter. For the first time ever, investors deployed over $67 billion in a single quarter to late-stage companies, which represented a record 3/4 of total VC deal value in Q1.

Capital fueled growth

The Sheer Amount Of Capital Available To Late-Stage Has Fueled Its Explosion For The Last 3 Quarters

The SPAC craze and the capital gains from VCs have been widely used to fuel this growth. The late stage market is attracting more non-traditional investors to its ranks, which in turn drives the demand from VCs to find the best possible startups in order to unload their capital onto.

By Sectors

Sectors That Saw The Biggest Funding In Late-Stage Include, Non-Surprisingly, Health Care

But also financial services, transportation, commerce and shopping. Sectors that saw the biggest increase year over year include administrative services, lending, and sales and marketing.

VC perspective...

Investors have increasingly concentrated capital into mature companies and for many reasons, among them now the shift to remote work and the companies that have adversely affected by the lockdown.

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  • Late-stage companies also tend to possess more concrete financial metrics and other operating data points relative to those in earlier stages of development. This reduces risk and increases the effectiveness of forecasting models.

  • The additional data allows investors to complete a transaction more confidently and without meeting the founders face to face, putting earlier-stage companies at a disadvantage.

  • With the explosion in SPAC deals, the ecosystem has become extremely competitive as VCs and SPAC companies battle to fund the startups that garner traction and show high potential for huge gains. They offer different pros and cons apart from only capital and this has flooded the marketplace with new players in town.

Exit Landscape

Quarterly vc-backed exits by type

Starting Q1 There Were Over 600 Acquisitions Of VC Backed Startups Totaling A Staggering $57 Billion In Deal Value.

Vc-backed global acquisitions

This Comes As No Surprise, With The SPAC Boom In Full Force During Q3/4 2020

...And continuing its trend in Q1 2021. It was clear that acquisitions would skyrocket. We expect billion-dollar acquisitions to increase during the later periods of 2021 as Covid vaccines continue to roll out and markets begin to open up again.

Notables In Q1 2021

Notable Acquisitions in Q1 '21

The largest acquisition of the quarter was for engineering services company GlobalLogic, which was acquired by Hitachi’s for $9.6 billion.  Other notable acquisitions include...

Identity management platform Auth0’s which was acquired by Okta for $6.5 billion and video game publisher Moonton, acquired by Nuverse for $4 billion

Notable IPOs in Q1 '21

In Q1, we saw 80 global venture-backed companies that went public. The most highly valued were Beijing-based video streaming platform Kuaishou Technology, valued at $150 billion; Seoul-based e-commerce and delivery company Coupang, valued at $60 billion.

The next player on this list is the highest US-based company, Roblox which is a well-known online game that was valued at $30 billion. For Europe, electric vehicle startup Arrival which is based in London was valued at $13 billion.

VC Perspective...

Join us remotely February 22nd - 26th to learn how your  startup can build a repeatable playbook to acquire, retain & grow customers.

In the IPO market, decacorn valuations continue with unprecedented growth in Q1 with 8 venture-backed companies debuted at a valuation above $10 billion, marking the highest count in the last decade. For reference, a total of 13 IPOs above $10 billion happened in the whole of 2020!

The NFT Craze, Explained

What is this you ask?

Well This Is What We Call A Non-Fungible Token (NFT) And Believe It Or Not, It Sold For Over $700,000…What is this you ask?

Yes We’re Serious.

So what exactly are NFTS?...

An NFT Is What's Known As A “Non-Fungible Token”.

These tokens represent a unique set of files that are stored within a blockchain and essentially, allow people to verify the ownership of digital art works such as the one above. The buyers usually have a form of limited rights that allow them to display the digital artwork, however, they are mostly symbolic and are used as assets that will be sold later down the line. Think of it as owning an original work of art from Picasso. Whilst I may have a copy in my home or on my computer, I don’t own the original. NFTs are using the same concept but, with digital art.

And why does this matter?...

As NFTs are located within a unique and extremely secure blockchain, they can effectively be used to store all kinds of data, both private and public. This data could range from your health records such as date of birth or medical conditions, or as previously mentioned, real estate property and other assets.

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  • When considering NFTs in their current use as a form of digital art exchange, they become limited to a small vertical within the VC industry that might create a small subset of winners that become unicorns. However, the greater picture here is that NFTs may very well be used to facilitate and execute agreements that allow individuals to exchange virtually any asset class such as crypto, property, money, stocks, bonds, physical art etc.

  • This has the potential to bring about an entire new trend that is being spurred on by the blockchain technology, supported by AI/ML, which is growing exponentially.

  • We believe there is a chance that NFTs (as unappealing a name it is) might facilitate the transition from using traditional paper/data centers to blockchain technology in order to store our information in real time. With the above-mentioned use cases, NFTs can potentially optimize the whole agreement process and thus, bring in enough value for consumer demand to soar which could also lead to a higher adoption of cryptocurrencies.

Its real value is still TBD

And Of Course, Is Far From Today’s Reality

NFT marketplaces worth looking out for:

Join us remotely February 22nd - 26th to learn how your  startup can build a repeatable playbook to acquire, retain & grow customers.

  • These type of marketplaces offer a wide range of non-fungible tokens, including art, censorship-resistant domain names, virtual worlds, trading cards, sports, and collectibles.

  • According to data from DappRadar, the average NFT price peaked at $4334.21 on February 22, 2021, which was 40 times that of six months ago. One of the hottest areas to look out for within the NFT space is the emergence of framework builders that will allow NFTs to grow

  • One such player is Polygon. Polygon is a protocol and a framework for building and connecting Ethereum-compatible blockchain networks. Celebrities such as Jack Dorsey and Elon Musk have auctioned their tweets as NFTs on the Polygon-powered platform called Cent.

What We Are Expecting In 2021

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“The most successful businesses have an idea for the future that's very different from the present - and that’s not fully valued.” – Peter Thiel.

Financial innovation is coming and its coming big time. Decentralized Finance (DeFi), is a concept in which financial products are made available on a public & decentralized blockchain network which makes them open for anyone to use. This effectively eliminates the need for middlemen such as banks or brokerages and thus has the chance to provide real value.

To be more specific, DeFi refers to a system where software written on blockchains makes it possible for buyers, sellers, lenders and borrowers to interact in a peer to peer fashion. This approach provides the solid foundation for new financial services and regardless of the technology or platform used.

DeFi systems are designed to remove intermediaries between transacting parties. Services such as borrowing and lending can now take place in a fully decentralized way, without involving financial (especially banking) institutions.

This new financial ecosystem is already operational. Within only two years, DeFi protocols have locked in over $19 billion in assets, and there are DeFi coins that have outperformed Bitcoin (BTC) this past year! It is worth mentioning that the total value locked in DeFi contracts is over $41 billion, as of March 2021, this already shows the traction it is garnering with investors.

DeFi is still in kinder garden stage

The DeFi Ecosystem, Whilst Promising, Is Still Riddled With Infrastructural Mishaps And Is Open To Hackers.

Scams are also quite common (as they are in general with crypto) in the rapidly-evolving DeFi infrastructure. The core issue of course is the responsibility, there is no state sponsored or market player that is liable if for example there is a system crash, a hack or a scam.

Still far from going mainstrem

These Issues Raise Many Questions

Which ultimately need to be worked out before DeFi becomes a mainstream system adopted by the masses.
It is without a doubt something to look out for in 2021 and the in the coming 3-5 years as we believe the topic will spread in popularity.

We expect to see an acceleration for the need of emerging managers

There exists a unique opportunity in the market now for emerging fund managers. These managers are driven by the desire to fill funding gaps, look for underserved markets and founder classes to make and cultivate innovative early ventures. This trend has already been quite prevalent within VC however, the need is only accelerating.

Specialist emerging managers that can provide unique insights, networks and value as they can efficiently deal with certain industries or geographical areas and especially, with the complexity of diverse founder backgrounds and personalities.

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We believe this will be increasingly emphasized in the coming years within the VC industry as players seek to establish deeper roots within certain industries/geographies as a way to differentiate themselves from competitors. It is this ultimate competitiveness that is driving the need for a more focused and strategic approach towards investing.

As Kauffman Fellows wrote here, we may expect to see a $20B+ investment opportunity in the emerging manager and micro-VC subclass in the coming year. Identifying, assessing and supporting high-potential managers thus represents both a challenge and an opportunity for the VC industry.

Traditional VCs may be slowly outperformed by specialist emerging managers

Though often overlooked in favor of well established institutional VC firms, the data shows that emerging managers and smaller funds tend to outperform established players: The Kauffman Foundation has found that new and developing funds have consistently constituted the majority of top 10-ranked VC performers over the past 15 years.

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Quite frankly, this only reinforces the notion that specialist managers that have successfully built their network and expertise will be needed to take the competitive edge. They will be key to enhancing a companies strategic advantage over others.

What We'll See In Early Stage

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We expect that founders will continue to have significant power to select investors & negotiate deals

It is no secret that as VCs continue to compete for the best startups with the highest potential, the power that those founders have is also steadily increasing

Institutional funds

Institutional Funds Certainly Provide A Set Of Unique Advantages Compared To Smaller Lesser-Known Funds.

Specifically, their investment can make a statement of confidence from the industry veterans which makes further investment more attractive and with higher potential.

Strong value prop

Institutional Funds May Add Value Through Larger Capital Allocations

Better deals

This Allows Founders, Particularly In The Early Stages, To Negotiate For Better Deals

And have terms that will benefit them the most. This effect is certainly not harmful to the VC industry as it allows space for meaningful relationships to blossom. The insider network here will be a definitive advantage and one that is likely to be quickly capitalized upon by many firms.

The issue

The Only Issue We See Is That This May Lead To Further Inflated Valuations For Early Stage Startups

Including those that do not yet have a clear path towards implementing the value that they are marketing. Ultimately, these waters must be carefully navigated with a longer term vision in place.

The Evolution Of The Workplace

Remote is here to stay

Remote Work And Virtual Meetings Show No Signs Of Fading Away

Other firms will follow suit

As We Can See So Far From Multiple Surveys...

Such as “a survey conducted of 278 executives by McKinsey in August 2020 found that on average, they planned to reduce office space by 30 percent”. This could likely be replicated by many other firms globally as they find new ways to cut costs and optimize their productivity.

Bad news for the travel industry

The Shift To Remote Work May Also Significantly Reduce The Business Travel Worldwide

NFT marketplaces worth looking out for:

Join us remotely February 22nd - 26th to learn how your  startup can build a repeatable playbook to acquire, retain & grow customers.

As NFTs are located within a unique and extremely secure blockchain, they can effectively be used to store all kinds of data, both private and public. This data could range from your health records such as date of birth or medical conditions, or as previously mentioned, real estate property and other assets.

  • According to an article by Eu-Startups, founders & investors identify Gaming, Fintech, Edtech, HR tech, Health & Hospitals, and Remote work as the top hottest tech sectors for 2021.

  • According to Crunchbase news, the sectors that received the most investments included health tech, fintech, transportation and commerce shopping. This represents where investors are seeing large scale opportunities, specifically within later stage startups.

Conclusion

Life slowly shifts back to normal

With The Vaccines Rolling Out At An Increasing Pace And Working Toward Mass Distribution In 2021

Other firms will follow suit

Will The Next Decade Create The Productivity Gains And Automation That Technology Promises?

Pr will they eliminate jobs and create economic turmoil? Will we improve the standard of living globally? As whole industries continue to be transformed and new ones emerge, it is going to be exciting to watch.