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Investors poured a record $330bn into private start-ups in the US last year, nearly doubling the total from 2020 in a flurry of dealmaking that rapidly inflated company valuations.
Venture capitalists vied with other deep-pocketed investors to win deals, giving leverage to the founders of attractive start-ups. Investors gained confidence from a wave of public listings that have delivered large returns to their backers, such as foundations and endowments.
Private venture-backed companies in the US raised a total of $329.8bn last year compared to $166.6bn in 2020, the previous record, according to PitchBook data. Investors put about four times as much money into start-ups than they did five years ago.
More than half of last year’s total, or $190.8bn, came from financing rounds of greater than $100m, as investors showed a willingness to plough large sums into relatively young companies.
Venture capitalists paid steep prices for stakes in promising start-ups which sometimes had scant revenues, attracted by strong demand for business software, ecommerce providers and other winners in the pandemic economy.
Stytch, a two-year-old authentication software start-up, had less than $1m in annual recurring revenues when Coatue Management and other investors valued the company at $1bn in November, according to the company.
Publicly listed business software companies trade at about 16.4 times revenues, according to the BVP Nasdaq Emerging Cloud Index.
Cryptocurrency start-ups have also attracted feverish activity. OpenSea, a marketplace for non-fungible tokens, announced on Monday it raised $300m of funding led by the investment firm Paradigm and Coatue, catapulting the company’s valuation from $1.5bn in July to $13.3bn.
Globally, private start-ups raised a total of $671bn last year, according to PitchBook data, an increase of more than 90 per cent from the previous year.
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Some investors have begun to raise doubts that the boom can sustain itself. The tech-heavy Nasdaq Composite index has whipsawed in the past two months and slid 3.3 per cent on Wednesday, with traders exiting software companies that have soared during the pandemic.
US venture capital groups raised a record $128bn last year, including $41.3bn for first-time fund managers, suggesting that large amounts of unspent capital could keep the boom alive.
Greg Bohlen, co-founder of Union Grove Venture Partners, which mainly invests in venture funds, said the firm has “taken pauses” on some managers that had recently looked to quickly raise new capital.
“Rationality always returns to a marketplace left to itself,” Bohlen said. “What we’ve been seeing is not rational.”
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