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Venture Capital Benchmark

Q3 2021

North America, Europe and Latin America.

Once again, the VC industry continued to build on the strength of previous quarters

The VC industry roared ahead, setting records in Q3 and putting 2021 on track for another record-breaking year for venture investment, exit activity, and fundraising, despite mixed macroeconomic signals and a prolonged pandemic.

Welcome to our quarterly VC benchmark, where we will be breaking down VC activity in the US, Europe, 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 Venture Capital world in Q3 of this year.

But First...

Crypto and blockchain start-ups have received about $19B in funding so far

Almost 3x that of last year. This shows that VC investment in crypto space has really come to age since the ICO mania of 2017-18. VCs are now becoming more comfortable with crypto and blockchain startups in general, and its no surprise given the public interest in this space thanks to bull run in crypto markets this year. We'll be covering this theme further in the second half of this report but first let's look at what happened in the VC markets in Q3.

Q3 in a nutshell

Eighteen months into the COVID-19 pandemic, the VC industry has continued to prove its resiliency while also directly supporting the economic recovery and strengthening public markets.

Europe's deal value drops

Deal value in Europe amounted to $27 billion, dropping 16% from last quarter

But it was the only region to do so. The USA and LatAm both reported all-time-highs for quarterly VC Investment totals. The USA topped $86 billion while LatAm reported $8.6 Billion (almost 3x of Q2!) The LatAm market continues to show incredible rebound despite all the political and economic uncertainty in the region.

The big picture

Startup Funding Remained Really High In Q3

Both early- and late-stage fundraising was on fire. Hence, we saw VC investment in all three regions at near record levels in Q3.

Funding in Q3 held steady from last quarter at around $122B, solidifying Q3 as the biggest quarter in investment dollars ever, almost doubling (89%) of last years numbers. Across USA and Europe, deal counts dropped 10% and 20% respectively. LatAm bucked the trend, where deal counts jumped 10%.

Let’s Look At The Numbers….

USA VC Landscape in Q3 ‘21

In the USA, the VC dollars invested held steady at around $86B

Europe VC Landscape in Q3 ‘21

European VC funding continued with its new normal

LatAm VC Landscape in Q3 ‘21

In Latin America, the VC dollar invested in third quarter jumped 465% over last year

Spotlight: Miami

Florida is going strong

2021 has been Miami's year as the hub of VC activity buzz

Seed and early-stage investment in Florida is up several folds YoY, with Miami startups making up the bulk of it.

Across all stages, Florida funding is also going strong. But early-stage deals factor heavily into these totals. So far this year, Florida companies have raised just over $1 billion in early-stage funding, almost 4x of 2020 total!

Deal flow has drastically increased in Miami

The buzz around Miami is really what's driving the momentum

But it's truly justified. As one of the VC pioneers in Miami, TheVentureCity established its root in the city back in 2017. Since then, we have seen founders, investors and local ecosystem players working together for years to build up the startup momentum.

The Future of VC is the Future of Women in VC

The record-breaking VC activity is also trickling down to women-led startups

Still these numbers do not tell the whole story

Percentage wise, the amount of venture capital going to female entrepreneurs in 2021 was lower than it has been for the last five years. The gap was particularly true for all-female founding teams, which have raised only 2.3% of VC funding this year, according to Crunchbase. Last year, companies founded solely by women garnered 2.2% of the total capital invested in venture-backed startups in the US. On the other hand, startups with mixed-gender cofounders raised 11.7% of funding, while men-exclusive founding teams took 86% of venture funding.

So much of early fundraising is about breaking into networks...

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

Seed funding

Companies across the VC spectrum are getting more expensive

At $5.7 billion, seed funding in Q3 was down 18% QoQ

But still 25% up YoY. Note that data lags for seed funding are the most pronounced, so these percentages will likely increase overtime. Overall, deal counts were also down 14% QoQ and 20% YoY, but this is normal as we expect this number to increase as more data comes in.

VC perspective...

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

The trend of large, multi-stage investors getting involved sooner in the venture lifecycle is now the new reality and the outlook looks bright for seed stage funding.

During Q3, both Andreessen Horowitz and Greylock announced new seed-focused funds of $400.0 million and $500.0 million, respectively.

The size of seed funds are also getting bigger, because investors now realize that having such big seed funds will give them flexibility in terms of not only the number of portfolio companies, size and valuation but more assurance that they would be able to follow-on their front-runners in to Series A and beyond.

  • As the late and growth stages become more and more crowded with nontraditional capital and valuations continue to rise, moving to Seed is allowing VCs to secure top deals as early as possible to help them drive returns.

  • Launching a seed-stage fund is also a diversification strategy to attract new LPs, or at least provide differentiated risk profiles across funds to existing backers.

  • This trend is almost guarantee that seed rounds will become bigger taking along the valuations with them for a ride. The ballooning size of seed rounds means that funding at this stage will continue to hold strong.

Early-Stage Funding

Early-stage deal activity remained strong in Q3

Early-Stage Frenzy

VC is undergoing a fundamental shift when it comes to deal sizes and valuations

The accelerated pace of investments has spurred frenzied competition among investors to identify and fund promising early-stage startups.

VC perspective...

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

As covered earlier, the rising prevalence of crossover investors coming earlier in the venture lifecycle in the last 9–12 months has pushed deal sizes upwards and skewed the distribution of deal sizes toward the larger end.

Both Seed and Early-stage are showing signs of the inflationary pressure in deal sizes from the abundance of capital within VC.

  • Crossover and other nontraditional investors tend to be less price-sensitive than traditional VCs and offer less stringent deal terms, often not even insisting on a board seat.

  • This has further blurred the lines between the traditionally distinct seed, early, and late stages as valuation multiples have skyrocketed to dizzying heights.

  • Since founders can build and grow more while bootstrapped than in prior years due to the ubiquity of cloud computing, non-dilutive funding sources, and other third-party resources, startups seeking early-stage capital are presenting stronger metrics and are able to achieve growth earlier, thus drawing significantly higher valuations.

Late-stage funding

Investors put $86.7 billion into late-stage venture and tech growth deals

VC perspective...

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

Q3 has continued with the rapid late-stage dealmaking trend that we have seen so far this year. This speaks to the swelling demand from the market for late-stage growth opportunities.

Same story here, the growth in nontraditional involvement has been a critical factor driving this pricing phenomenon given these investors’ deep pockets and ability to expedite deal closing by offering a more hands-off approach.

The expansion of available capital at the late stage has been the consistent driver behind the growth in deal sizes and valuations since most of the marginal capital entering the VC strategy has been allocated to the more mature startups.

VC Funding in the Digital Asset Space

No longer a monolith

The digital asset ecosystem is becoming more diverse

DeFi, NFTs, and decentralized exchanges are top of mind for a dizzying array of audiences

NFTs exploded in popularity

NFTs are now a bigger topic than 'crypto' or DeFi

A refresher on NFTs

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

The new piece in the puzzle

The Play to Earn Movement

Good news for gamers

Gamers are now able to earn revenue through their in-game NFT assets

Hence, P2E blockchain gaming space will be a huge growth driver for NFTs. Axie Infinity has become the spearhead of the P2E movement. The dapp dictates the pace of the game sector and it looks like it will just become stronger. Axie Infinity just had another impressive quarter, which saw it surpassing 1.5 million active users during Q3. In addition, during this quarter, the game generated over $776 million in revenues. Easily surpassing entire blockchains like BSC and Bitcoin.

Revenue of different blockchains in Q3

NFT and games dapps have been rising since June

NFTs took the crown

It's no surprise that the biggest VC rounds in Q3 were by NFT startups

Dapper Labs, the Canadian start-up behind digital basketball trading card platform NBA Top Shot, is now valued at $7.6 billion following a $250 million funding round led by Coatue.

Sorare, a French fantasy soccer game that incorporates NFTs, raised $680 million in a round led by SoftBank which valued the company at $4.3 billion.

VC Perspective

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

We see the P2E movement as the key driver in the continued adoption of crypto, in the short to medium term.

Despite ups and downs in the crypto market, the play-to-earn movement has continued to add gamers bringing them on-chain.

On top of that, NFT infrastructure that includes minting platforms, protocols and marketplaces is evolving at an earth shattering pace, making it ever easier and cost-effective to mint NFTs. Bundle that with rising NFT demand coming from the gaming industry and P2E movement, and it's crystal clear that the NFT market is here to stay as it adapts to the creative preferences of a new digital generation.

  • What NFTs have been missing so far is a clear use case...

  • Having said that, we are excited about the new projects coming online now that combine NFTs with DeFi to introduce new business models and value chains.

  • What makes NFTs so powerful is that they don't just prove authenticity and ownership. NFTs also allow rare digital assets to be portable and interoperable.

  • This is significant because it enables the owners of such assets to bring their NFT-backed digital assets across the open web.

Enter the metaverse

It would be a shame at this point to not introduce the Metaverse. Although we don't have time to cover Metaverse in any detail, we would remiss if we didn't at least give it a shoutout.

Metaverse is poised to become a multi-trillion-dollar digital economy

With that in mind, we will be starting a series that will cover Web3

Plus NFTs, DeFi and how they piece together and how they'll interact with the Metaverse. Our goal would be is to translate to a broader audience, and flesh out some nuances underlying the future of this tech.

Stay Tuned...