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2020 Venture Funds Mixed, Biotech Keeps Sizzling

2020 venture transactions

Click on image for full-size view (PwC/CB Insights MoneyTree report)

18 Jan. 2021. Total venture investments in dollars jumped to a new high in the U.S., while biotechnology remained the single hottest sector in 2020. At the same time, the latest quarterly MoneyTree Report shows the total number of venture transactions eased from 2019, and seed funding deals for start-ups dropped sharply from the previous year.

The new MoneyTree Report, published last week by accounting-consulting enterprise PwC and technology research company CB Insights, shows venture investment dollars in U.S. companies totaled $129.7 billion in 2020, a new record high. The previous annual record was $122 billion in 2018. Venture investors placed $36.7 billion in the fourth quarter of 2020, almost the same as the third quarter total investment dollars for U.S. businesses.

The total number of investment deals in U.S. companies, however, dropped to 6,022 in 2020, continuing a downward trend from 7,052 in 2018. One glimmer of hope is a gradual increase in the number of venture transactions during the year, from 1,471 deals in the first quarter to 1,549 in the fourth quarter. The 400 seed-stage transactions — funding for brand-new start-ups — make up 26 percent of the total number of deals in the fourth quarter, but investment deals for these new enterprises have been dropping each quarter since 2019. Crunchbase found a similar decline in seed-stage funding over 2020.

Venture investors favored larger rather than smaller U.S. deals in 2020. So-called mega-rounds, deals of $100 million or more, comprised about half (49%) of total investor dollars, with the 318 mega-rounds in 2020 marking a new record number of deals that size.

Biotech remains super-hot

In the fourth quarter of 2020, venture investments in Internet-related businesses far out-paced other U.S. industries, attracting $15.3 billion in 687 deals. Health care companies ranked second drawing $8.5 billion in 244 transactions. But drilling down to individual sectors within industries reveals biotechnology as the hottest venture investment target throughout 2020, continuing a trend that began in previous years. During each quarter of 2020, venture firms invested more than $2.2 billion, in more than 85 deals. Internet companies developing accounting and finance software as a service  ranked second in both investment dollars and deals.

Worldwide venture investments in 2020, according to the MoneyTree report, showed a similar pattern to the U.S. Venture capital funding rose 15 percent to $295 billion last year in North America, Europe, and Asia combined, with venture funding also rising 11 percent in the fourth quarter compared to third quarter. However, the number of deals declined in 2020, by 9 percent in North America, 7 percent in Asia, and 6 percent in Europe.

The MoneyTree report also tracks exits, mergers and initial public offerings or IPOs where companies graduate from venture funding. In the U.S., the number of both mergers/acquisitions and IPOs reached record levels, with 210 and 61 respectively. The single largest merger-exit in 2020 was Bayer’s $4 billion acquisition of AskBio, short for Asklepios BioPharmaceuticals, a developer of gene therapies for inherited disorders, as reported in October by Science & Enterprise.

Venture investors continued to raise considerable funds for more deals. The MoneyTree report says venture investors raised $1.12 trillion in 2020, up from just over $1 trillion in 2019 and the second year in a row exceeding $1 trillion. The top five investment fund raisers accounted for $39 billion of that total in 2020, led by Andreessen Horowitz that alone raised $11 billion last year.

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