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An incredibly strong exit market, high valuations, and a highly competitive market for VC deals helped drive VC funding in the US through the roof in Q1’21. Increasing vaccine distribution and the sense of a light at the end of the pandemic tunnel likely also contributed to a strong sense of optimism in the US during the quarter.

$1 billion+ mega-deals strengthen investment numbers

Very large mega-deals helped propel VC investment in the US, including a $3.4 billion raise by wealthtech Robinhood, a $2.6 billion raise by electric vehicle company Rivian Automotive, a $1.1 billion raise by delivery app GoPuff1 raised $1.1 billion, and $1 billion raises by healthcare practice management platform VillageMD and data analytics software company Databricks. These deals highlight not only the strength of the US VC market, but also its variety – with each company reflecting a different hot sector of investment, including fintech, automotive, logistics, and healthcare.

Growing deal sizes and the larger number of $100 million+ megadeals likely also contributed to the record 64 unicorn births in the US, including companies like Hinge Health, Dremio, Enfusion, Axiom Space, BlockFi, Pilot.com, and Cameo.

Venture financing in the US, Q1'21

SPACs attracting significant attention as exit interest remains high

SPACs continued to gain ground in the US as an alternative to traditional IPO exits during Q1’21. A large number of SPACs were formed in the US in recent quarters, and each of these SPACs will need to find a company to invest in within the next two years. The increasing availability and visibility of SPAC transactions has led to more companies looking at a SPAC merger as a potential exit option. Some companies that were eying IPO exits over the next two to three years are now looking at SPACs as an opportunity to go public sooner.

One concern related to the increase in SPAC transactions is the potential for companies to go public before they are well-equipped to do so. While SPAC transactions are expected to remain an important exit option in Q2’21, the use of SPACs over the longer term will likely be dependent on the performance of companies that have recently exited via SPAC mergers.

There continues to be enormous amounts of capital looking for a home – and a significant appetite for public issuances. In addition to traditional IPOs, the SPAC phenomenon continues to accelerate – including companies availing themselves of SPACs as a way to go public sooner than they may have initially planned. It remains to be seen if all of these companies will be able to effectively function as a public company.

Conor Moore
Global Co-Leader — Emerging Giants,
KPMG Private Enterprise, KPMG Partner, KPMG in the US

Direct listings also continued to be seen as a potential IPO alternative; in Q1’21, video game platform Roblox conducted a direct listing, with share prices rising 50% on the first day of trading.

Trends to watch for in the US

VC investment in the US is expected to remain strong and valuations are expected to remain high in Q2’21 as VC investors continue to compete for the most attractive deals. Fintech is expected to remain a very hot area of investment, in addition to digital solutions and almost all areas of AI.

IPO activity will likely remain quite strong, including both traditional IPOs and direct listings. More SPACs are also expected to be formed during Q2’21, while SPAC mergers will likely increase.  

  • VC hits record $69 billion invested across 3042 deals

  • Median deal size by stage reaches $14 million for late VC

  • Early-stage volume has strong start to the year

  • Corporate VC surges to over $30 billion invested

  • Exits continue at elevated pace

  


1 https://techcrunch.com/2021/03/23/gopuff-new-funding/