Nothing is a surprise after 2020. With all of the tumult that happened during the pandemic, including decimation to global economies, it seems that venture capital held strong and is performing better than ever when it comes to your deal team.
After a record year, 2021 started off strong and Q1 showed an increase in investment, exit, and fundraising activity over the prior year’s first quarter. According to the Q1 Venture Monitor PitchBook report, $69 billion was invested into VC-backed companies, a 92.6 percent increase over 2020 Q1. Most of that capital was poured into late-stage investments yet angel/seed and early-stage investments remained robust.
Where did this record-high deal volume come from?
Speed of Diligence
The pandemic changed the way that companies do business worldwide, including private equity and venture capital. With the wide acceptance of working from home, lack of travel, and normalization of video meetings, some of the deal bottlenecks were removed, resulting in faster-paced deals.
Decisions that used to take weeks or months are now decided in a matter of days. Making a deal is no longer dependent on coordinating busy schedules and flight plans. It seems that deal team diligence processes have become streamlined and the lags that would normally stall a deal have been removed.
High Amounts of Dry Powder
Over the past year and a half, we’ve also seen an increase in marketable securities that are low-risk and highly liquid. The beginning of 2020 saw unprecedented sums of dry powder with more than $1.5 trillion available to fund managers worldwide.
Dry powder funds, kept in reserve in case of emergencies, continue to be strong. With a high amount of dry powder at their disposal, firms were able to invest in opportunities as they arose and quickly fuel growth for portfolio companies.
The performance acceleration achieved by active venture capital funds recently is part of a longer trend that we’ve seen over the past decade. VC funds have been breaking record after record, an evolution that mirrors the progression of the valuation of listed tech companies.
While the returns have multiplied, it’s definitely not a sure thing. Risk has gotten riskier. Institutional Investor found the difference in performance from those deals at the top and those at the bottom reached a record high with the total value paid in (TVPI) spread peaking at 1.98x. This divergence from previous patterns could be an indicator of more challenging market conditions in which some firms thrive and others increasingly struggle.
Even with risk remaining a factor, the possibility of handsome rewards has had a hand in increasing deals. Megadeals, deals at or over $100 million, are on a hot streak, and 2021 is already delivering multi-billion dollar exits.
How Your Deal Team Can Adapt
With the new fast-paced speed of diligence, unprecedented amounts of dry powder, and record-breaking performances rocking the US market, it’s more important than ever to have the right tools in place to support your deal team. Teams don’t have time to guess what investors are thinking. The opportunities are great and those who are able to take action fast and provide top-notch investor relations will come out ahead.
Industry-specific solutions, like Altvia, allow the deal team to have great visibility, match the speed of deals, gain insight into investor interests, and prioritize deals that will yield the best performance.
Looking for an industry-specific solution to help your firm manage the deal process? Request a demo of Altvia.