Venture capital (VC) investment globally remained strong in Q4’21 — bringing to a close an incredible year. The ready availability of cash, the significant returns seen on exits throughout the year, and the increasing participation of corporates, family offices, and a range of other non-traditional investors has only added to the overall attractiveness of the market. With the rise of the Omicron variant and the return of work-from-home mandates in some jurisdictions or the delay of return-to-office plans in others, the continued pressure to enhance digital offerings and hybrid work environments is expected to remain firmly on the radar of investors across industries. The combination of a strong investment environment and the continued drive for digitalization will likely help keep VC investment high heading into Q1’22.
2021: The year of breaking records
2021 was the strongest year for VC investment on record, in terms of both total deal value and the number of VC deals seen globally. The robust VC investment climate was highlighted by record setting investment levels in numerous jurisdictions, including the US, Canada, Brazil, the UK, Germany, Israel, the Nordic region, Ireland, and India. Corporate VC investment also reached a new high during the quarter – more than a third higher than the previous record set in 2018.
The expanding breadth of VC investors, including an increasing number of non-traditional investors, globally propelled fundraising near-record levels, only slightly lower than 2019’s total. On the other end of the deal life cycle, both the number of exits and total exit value also broke records – with the latter almost three times the previous high.
Unicorn companies key to VC investment surge
Unicorn companies globally continued to account for a significant amount of VC investment in 2021, with a number of existing unicorns raising large rounds in Q4’21, including J&T Express ($2.5 billion), Lacework ($1.3 billion), Thrasio ($1 billion) and N26 ($900 million). The number of unicorn deals more than doubled year-over-year, along with the total amount invested in unicorn companies.
The number of unicorn companies continued to explode in Q4’21, with 126 unicorns globally. Quite a range of less mature VC markets saw new unicorns birthed during the quarter, including Vietnam (Sky Mavis, Momo), Brazil (CargoX, Olist), Mexico (Clara, Merama), Indonesia (Kopi Kenangan, Ajaib), and the Philippines (Mynt) – highlighting not only the increasing diversity of the global VC market but the growing size of startups attracting investment in all corners of the world.
ESG continues climb to prominence
Following on the strong uptick last quarter, the importance of ESG continued to gain ground in Q4’21 – helped in part by the COP26 conference. The focus on ESG has evolved considerably over the last year given increasing pressure from consumers demanding more action from the companies they do business with, VC investors increasing evaluation of ESG metrics to inform their investment decisions, and the growing importance of ESG stories for companies looking to go public.
The breadth of ESG-specific VC investments has also evolved, with an increasing focus on net zero or low emissions technologies across sectors, food and agtech, and alternative energy. From a VC investor standpoint, one challenge with ESG continues to be the lack of standards for evaluating ESG activities on a consistent basis; heading into 2022, there will likely be increasing investments in ESG solutions and measurement tools to help both companies and investments track, measure, and report their results.
Trends to watch for in 2022
Heading into 2022, VC investment is expected to remain very strong in most regions of the world, with less developed VC markets, such as Africa and the Middle East, expected to gain more attention from VC investors. Fintech will likely remain one of the hottest areas of investment, in addition to B2B services, healthtech, cybersecurity, and AI solutions across sectors. ESG-aligned VC investments are also expected to grow as both companies and VC investors increasingly prioritize or target a broader range of ESG fundamentals.
While the pace of IPOs may drop off somewhat heading into Q1’22 as companies focus on preparedness, the quality of IPOs is expected to be very strong. M&A activity will likely remain robust, particularly in highly mature sectors like fintech and food delivery — where consolidations are expected to increase significantly.
There’s a lot of positivity right now in the global VC space and, assuming there’s not some major setback due to the Omicron variant, that positivity is likely going to carry well into 2022, particularly in the US and Europe. Over the next year, we’re also going to start seeing VC investments pick up in less developed regions of the world, including in places like Africa, the Middle East, and South America.
VC investment capped off incredible year with another near record quarter of $171.4 billion.
Corporate VC participation jumps from $49.9 billion to $81 billion YoY.
Unicorn rounds spike for fourth consecutive quarter.
Venture-backed exits surpass $300 billion for the quarter — again.
Global fundraising reaches $200 billion in 2021.