US start-up funding touches new record amid pandemic

The number of unicorns ticked up to 225 in the US. PHOTO: REUTERS

NEW YORK (BLOOMBERG) - What began as a desperate year for start-ups, characterized by mass layoffs as the pandemic took hold, has turned into a record venture capital funding haul.

Despite the economic tumult wrought by the coronavirus, start-up investing in the US reached a record high of US$130 billion (S$172 billion) in 2020, according to a new Money Tree report from PricewaterhouseCoopers/CB Insights. Companies like Instacart and Stripe helped drive the surge by raising hundreds of millions apiece, even though the total number of funding rounds was lower than in 2019. The year also saw an uptick in funding for several cities outside the Bay Area, long the center of the start-up universe.

Venture capital funding in 2020 rose 14 per cent from 2019, according to the report, which includes private equity and debt investments as well. Last year also saw an increase in megarounds, meaning deals larger than US$100 million, even as the number of funding rounds decreased, particularly for very young start-ups.

The largest deals were a US$1.9 billion infusion into Space Exploration Technologies Corp. and US$1.5 billion in funding for Epic Games, both giant funding rounds that were emblematic of the increasing muscle of private equity and mutual funds willing to write large checks to late-stage tech companies. In 2016, megarounds represented just 25 per cent of the total money invested. That number increased to 49 per cent in 2020 - higher than ever - the report found. Large corporate players, including SoftBank Group Corp, Google Ventures and Uber Technologies also helped drive the rush to fund large start-ups.

Another record for 2020: The number of unicorns ticked up to 225 in the US, as more companies achieved a valuation of US$1 billion or more for the first time.Meanwhile, early-stage companies struggled. The number of total deals decreased for the second year in a row, sinking to 6,022. In the fourth quarter, the most acute pullback occurred in seed funding rounds, followed by Series A deals.

The much-talked-about Silicon Valley exodus showed up in the data to a limited extent. California retained its title as the top spot for venture dollars last year. Companies based in the state, combined with established tech hubs New York and Massachusetts, attracted 74 per cent of all US funding. But new tech hubs gained ground. San Diego, Miami, Denver and Atlanta all more than doubled the amount of venture funding raised during the fourth quarter compared with the quarter before. The Miami metropolitan area saw the sharpest increase, notching US$1.9 billion for the year thanks to start-ups including Reef Technology and ShipMonk, while the San Diego metro marked its biggest year on record with US$5.3 billion raised.

Fintech, artificial intelligence, digital health and medical devices dominated deal activity, while the once-hot auto-tech sector declined both in the number of deals and total raised.

There are no signs that growth in VC funding will slow this year. A record year for initial public offerings in 2020 allowed investors to deliver returns to limited partners and raise new funds. And VCs are sitting on significant dry powder. US investors raised US$1.1 trillion to invest in start-ups last year, led by Andreessen Horowitz, which raised US$11 billion.

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