US VC exits surge to huge quarterly total despite Covid uncertainty, fundraising on track for record year, new research shows

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US venture capital exit activity has hit its second-highest value ever recorded despite global volatility in recent months due to the coronavirus crisis, new research shows.

The latest PitchBook-NVCA Venture Monitor said positive momentum from the stock market in recent months, particularly the performance of new listings, had encouraged companies to move forward with IPOs if they were prepared and considering that exit route.

A tepid first half of the year for exit activity gave way to booming figures in the third quarter, the report said, with $103.9bn raised across 185 exits – quarter-on-quarter increases of 292.5% and 7.6%, respectively.

Several large IPOs closed during Q3 and pushed exit value to its second-highest quarterly total behind only Q2 2019, the quarter Lyft and Uber debuted – a result that seemed impossible six months ago when the COVID-19 pandemic first emerged.

The public listings of Snowflake, Palantir, Asana and Unity made up 64.8% of Q3 2020’s total exit value, the report said, highlighting the importance of outlier exits.

Investors have continued to consolidate capital into their most valuable and mature businesses, the report said, leading to a consistently high volume of VC mega-deals.

It said, “The explosion of this slice of the VC ecosystem has been one of the most drastic changes over the last 10 years and has actually ramped up throughout the Covid-19 pandemic.

“One big reason behind the increase is that nontraditional involvement, including sovereign wealth funds, mutual funds, and hedge funds, has remained in play despite the economic slowdown.”

Fundraising activity remained strong in the third quarter, putting 2020 on track to set a record high for total capital raised despite fears of LPs stepping back commitments amid the Covid-19 pandemic.

The $56.6bn raised across 228 vehicles in the first three quarters of 2020 has already surpassed 2019’s full yearly fundraising activity of $54.9bn.

Those robust fundraising figures are in part due to 35 VC mega-funds of $500m-plus, representing an all-time high and 15.9% of total funds raised so far in 2020, the report said.

It added that raising a first-time fund in the current climate, however, was a herculean task. Only $1.9b has been raised across 30 first time funds through Q3, representing a record low of 3.3% of total capital raised.

PitchBook founder and CEO John Gabbert said, “Despite continued uncertainty throughout the year, the rebound in public markets has given investors’ confidence.

“LPs are recommitting with proven GPs raising successor VC funds. As investors seek growth opportunities in a low-rate environment, the growth potential of the venture strategy continues to entice both traditional LPs and nontraditional investors.

“Additionally, we saw the return of large IPOs during the third quarter and expect more in the coming months as VC-backed companies look to capitalize while the IPO window remains open.”

Bobby Franklin, president and CEO of US VC industry body NVCA, added, “The consolidation of capital continues toward larger, later stage companies and established VC funds.

“While both of these trends are potential signs of concern for the long-term health of the VC lifecycle, overall the ecosystem has shown strong resiliency in the past six months.

“Many types of tech and life science companies have seen noteworthy growth during the pandemic, and new innovations spurred by startups are being rapidly adopted across the country.

“There are still many uncertainties on the horizon, including the upcoming presidential election and continued impacts from the Covid-19 pandemic, but the strength of the ecosystem is encouraging to see, especially since VC and startups will be crucial to the economy’s recovery.”

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