Jan 21, 2022 - Economy

Venture capital's exit-driven pandemic returns

A $1 bill

Illustration: Sarah Grillo/Axios

U.S. venture capitalists raised a record $128.3 billion in 2021, and it’s no wonder given the prior year's near-record returns of 50.1%, per Cambridge Associates.

Why it matters: The last 18 months have shattered startup fundraising records, but the latest venture performance data suggests the public listing boom has made it an equally fruitful period for their investors.

The big picture: Globally, venture capital has been the top-performing private capital strategy for the last three years, according to Pitchbook’s analysis of internal rates of return over a one-year period as of the end of 2021's Q2.

  • U.S. VCs’ returns for 2020 rank second only to 1999, per CA, and are the eighth-best rolling one-year basis in the last 40 years.
  • In 2020, U.S. VCs invested $166 billion into startups (up 18% from 2019), and global VCs invested $294 billion (up 13.5% from 2019).
  • In 2021, U.S. VCs invested $330 billion, while global VC hit $621 billion.

Zooming in: According to new data from Pitchbook, North America’s 2020 vintage funds outperformed the S&P 500 (71.66% pooled IRR vs. 30.82%) and the Russell 2000 (71.66% pooled IRR vs. 40.37%).

  • 2019 North American funds similarly outperformed, as have 2019 and 2020 funds globally.

Between the lines: Much of those gains are unrealized — nearly 90% for 2020, to be exact, according to CA.

  • What’s more, about a quarter of CA’s U.S. VC index was made up of publicly-traded companies (in large part thanks to 2020 listings), nearly three times as much as two years earlier.
  • One investment manager at a major U.S. insurer tells Axios that their venture portfolio is up more than 100% over the last 12 months thanks to large tech IPOs, contributing significantly to the company’s overall income for 2021.
  • “So, ironically, private market returns are being materially driven by publicly traded companies,” Andrea Auerbach, global head of private investing, wrote last July.

The big question: Whether the public listing music keeps playing. With the recent market selloff, some companies like Justworks are already delaying their market debuts.

The bottom line: About 90% of institutional investors in a recent Venture Capital Journal survey say they intend to maintain or increase their venture footprint over the next 12 months, and 40% expect the IPO boom times to continue.

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