The abundant well of capital has yet to dry up as annual VC fundraising eclipsed $100 billion in 2021. VC firms raised a record shattering $128.3 billion in new capital over the course of the year, representing a 47.5% YoY increase over 2020’s $86.9 billion. The median and average fundraising value in 2021 also saw a notable jump to $50.0 million and $188.1 million, respectively, a significant increase over 2020’s median and average fundraising value of $42.1 million and $156.9 million, respectively. Venture as an asset class has outperformed in recent years. Pitchbook’s latest Global Fund Performance Report shows that one-year and three-year horizon IRRs for venture have significantly outpaced every other private capital asset class, including private equity, secondaries, real estate, real assets, private debt, and funds of funds. As such, LPs continue to allocate capital toward venture at unprecedented rates, allowing VCs to raise new funds with relative ease. Furthermore, some VCs have felt the urgency to raise larger funds to compete with the swaths of crossover investors that have infiltrated venture deals over the last 12 to 18 months
On the other end of the spectrum, the amount of capital raised by first-time managers picked up steam in 2021 after first-time fundraising value dropped off sharply in 2020. First-time VC fundraising activity notched $9.1 billion across 172 funds in 2021. These included notable first-time funds, such as Walden Catalyst Ventures’ $550.0 million inaugural fund focused on deep-tech start-ups and UP Partners’ $230.0 million Fund I focused on transportation and logistics start-ups. In a similar vein, emerging managers (those that have raised fewer than four funds) also saw First-time funds surge in 2021 over prior year US first-time VC fundraising activity.
While established managers (those that have raised four or more funds) continue to take the lion’s share of new fundraising value, emerging managers accounted for 32.2% of new capital in 2021. In 2021 US Venture Capital Outlook, published in December 2020 by Pitchbook, it was predicted that this proportion would drop to 25% given the reputation strength and deployment capabilities of their more established counterparts. However, emerging managers were resilient throughout the pandemic and retained their share of the market throughout the past year. One interesting fund-related piece of news that occurred in Q4 was that Sequoia Capital, a stalwart of the VC industry, restructured their firm into a single fund and became a registered investment advisor (RIA) instead of remaining an exempt reporting advisor (ERA) like the overwhelming majority of VCs. This restructuring both eliminates the traditional 10-year fund lifecycle indicative of venture funds and allows Sequoia to exceed the 20% threshold of “nonqualifying investments” into other asset Contributions
In their 2022 US Venture Capital Outlook, they predict that at least three more VCs will follow suit and register as RIAs in the next year. Given the public market exposure that many VCs’ portfolios have experienced from the IPO boom of VC-backed companies in the last year and a half, along with the rise of cryptocurrency and blockchain-enabled technologies, we believe there is merit to fund restructuring for a subset of investors.