Q3’21 Venture Pulse Report– United States

Large megadeals continued to dominate the US VC market in Q3’21, led by electric vehicle company Rivian’s $2.5 billion funding round, sustainable energy infrastructure company Generate’s $2 billion raise, data and AI firm Databricks’ $1.6 billion raise⁴, remote employee training company Articulate’s $1.5 billion funding round, Devoted Health’s $1.2 billion raise, fintech company Chime’s $1.1 billion and delivery company GoPuff’s $1 billion raise.

Across all deal stages, median deal sizes continued to grow in Q3’21 as companies attracted larger and larger funding rounds. These growing deal sizes highlight the significant amount of capital continuing to pour into the VC market in the US.

Fundraising in the US reached an annual record high in Q3’21. This reflects a combination of factors. Well-established VC firms with proven track records are taking much less time to raise new funds than in the past; while the transition from wrapping one fund to closing the fundraising on a new fund might have taken 2 to 3 years historically, some are now doing it within 18 months. The VC market is also seeing more players developing VC funds, including numerous corporates who are using their investments to replace or supplement R&D activities and to better identify early acquisition targets.

IPO and M&A activity slowed somewhat in Q3’21, driven in part by seasonality, but likely also as a consequence of companies feeling less pressured to exit quickly. Companies are becoming more strategic about their exit plans, taking the time to ensure they are well positioned to get a strong result.

IPO activity is expected to bounce back in Q4’21, although the percentage of IPOs that are completed via SPAC will likely decline as the fervour associated with SPAC transactions continues to wane. M&A activity is also expected to be robust, although the panic associated with the potential for valuations to rise exponentially in a short period of time has calmed considerably in recent months as investors have shifted their focus from a near-term outlook to a longer-term one.

Both fintech and healthtech remained hot areas of investment in the US in Q3’21, in part due to the growing diversity of companies in the two spaces. Digital banking attracted the largest fintech deals in Q3;21, including a $1.1 billion raise by Chime, and a $510 million raise by Varo⁴, although VC investors also showed interest in areas like insurtech, blockchain, and B2B financial services.

In the healthtech space, Devoted Health raised $1.2 billion this quarter. In addition, drug discovery remained popular with US-based VC investors, with eRNA therapeutics company Laronde raising $440 million in Q3’21. Other heath-focused subsectors gaining traction among VC investors in the US include feminine health, robotics, and the integration of AI in day-to-day health system processes. 

Heading into Q4’21, ESG is expected to continue to grow on the radar of VC investors in the US, with a broader range of companies with sustainable solutions attracting investment. There will likely also be an increase in VC funds specifically focused on funding startups with an ESG focus. Real estate focused solutions could also see growing VC investment over the next few quarters.

Following the summer lull, IPO activity is expected to rebound in Q4’21 and into Q1’22 as companies continue to move forward with their plans to go public. While there will likely continue to be a pullback in SPAC IPOs in the US, traditional IPOs and direct listings are expected to remain popular.