“The Sharpest of Recoveries”: The 2021 V21 Analysis

Peter Wagner | May 15, 2021

A year ago we were wondering what kind of reality we had entered. The COVID pandemic had clearly put a deep chill on venture investing. The main question seemed to be what kind of market crash this would be. Would it be a drawn-out, grueling “nuclear winter” of the sort we experienced from 2001 to 2003? Or would it be a “V-shaped recovery” à la 2009?

Perhaps unsurprisingly, the answer was “neither”. Welcome to Wing’s fourth annual “V21” study, which examines early stage financing dynamics amongst the industry’s highest quality startups. As in our prior studies, we have updated the V21 analysis with a new year’s worth of data. We have also refined several aspects of our methodology and analyzed the dynamic nature of the underlying data set. The curated V21 data set now captures the details of 7,608 financings at 3,908 companies invested in by at least one of 21 elite venture firms across 11 years.

The annual trends observed in prior years have accelerated and expanded, so much so that we could have titled this year’s study “The Same but More” with a straight face. However, we look at the data by quarter this year for the first time given the pronounced, sudden—and seemingly ephemeral—impact of the pandemic. The recovery has been sharper than sharp, with Seed financings experiencing little-to-no negative impact and Series A’s and Series B’s experiencing drops followed by rebounds to new all-time quarterly highs by the fourth quarter. The first quarter of 2021 revealed even more acceleration, reminding us once again that history doesn’t actually repeat, and while it does rhyme, the meter is quickening.

Executive Summary

Here is a summary of our findings.

Seed financings:

  • Companies continue to consume more Seed capital. In 2020, the median company had raised a total of $4.1M prior to raising a Series A, up from $3.9M in 2019 and 3.4x more than the $1.2M of 2010.
  • The size of Seed financings continued to grow. The median Seed financing was $4.0M in 2020, up 33% from $3.0M in 2019 and 4x more than the $1.0M of 2010.
  • Median Seed pre-money valuation also continued to grow. The median pre-money valuation for Seed financings in 2020 was $10.9M, up 9% from $10.0M in 2019.
  • Pre-revenue Seed financings were even more scarce this year than last. 81% of companies closing a Seed financing in 2020 were generating revenue, up from 73% in 2019.
  • A 2020 Seed is now like a 2010 Series A.

Series A financings:

  • The size of Series A continues to grow, but more moderately. In 2020, the median Series A was $13.0M, up 5% from $12.4M in 2019.
  • This remains true as well of valuations. Median Series A pre-money valuation was $30.3M, up a modest 1% from $30.0M in 2019.
  • In 2020, 57 companies closed a Series A financing greater than $20M, up by almost 3x from 20 in 2015. There were only 8 such “Jumbo A’s” in 2010. As we reported last year, this count specifically excludes Growth Equity financings which are often labeled Series A.
  • Pre-revenue Series A’s continue to be rare. 88% of companies completing their Series A in 2020 were generating revenue, essentially flat versus 90% in 2019.
  • A 2020 Series A is now like a 2010 Series B.

The Findings by Quarter—The Sharp Recovery

A year ago, we were in the midst of planning for the uncertainty of a long pandemic. Indeed, some of the figures, particularly for Series A’s and Series B’s, demonstrate decreases during 1Q-3Q 2020. However, the pandemic recovery for venture investing has been dramatic, and all figures returned to pre-pandemic levels or reached new quarterly highs by 4Q 2020.

Frequent readers of our V21 study may note that we typically do not focus on deal volume, i.e. the number of deals. The nature of the V21 data set is such that deal volume naturally grows as V21 firms’ fund sizes and AUMs grow over the years. However, deal volume on a quarterly basis is more instructive as V21 firms do not grow on the timescale of quarters. As with round size and valuation, deal volume reached new quarterly highs for Series A’s and Series B’s by 4Q 2020.

Seed financings:

  • Seed round size increased in 2020. The median round size increased from $3.2M in 4Q 2019 to $4.4M in 2Q 2020—and remained relatively higher at $4.0M in 4Q 2020.
  • Seed valuations remained relatively flat during the pandemic. The median Seed pre-money valuation increased from $10.0M in 4Q 2019 to $12.5M in 2Q 2020—but returned to $10.0M in 3Q and 4Q 2020.
  • The Seed deal volume decreased from 70 in 4Q 2019 to 44 in 2Q 2020—but partially returned to 64 in 4Q 2020. Please note that we expect Seed deal volume for recent quarters to increase over time as 1) more Seed and serial Seed deals are announced and included in Pitchbook and 2) more companies are added to the V21 data set with V21-financed Series A or Series B deals.

Series A financings:

  • The round size and pre-money valuation for Series A’s decreased during the early pandemic but sharply rebounded by 4Q 2020.
  • The median round size decreased from $14.0M in 4Q 2019 to $12.0M in 3Q 2020—but reached a new quarterly high of $16.0M in 4Q 2020.
  • The median pre-money valuation decreased from $35.0M in 4Q 2019 to $26.0M in 1Q 2020—but similarly reached a new quarterly high of $37.4M in 4Q 2020.
  • The number of $20M+ Series A’s decreased from 19 in 4Q 2019 to 7 in 3Q 2020—but reached a new quarterly high of 23 in 4Q 2020.
  • The Series A deal volume initially decreased from 64 in 4Q 2019 to 55 in 1Q 2020—but ultimately reached a new quarterly high of 73 in 4Q 2020. The 2Q 2020 figure at 68 may be due to the time lag between deal closings and deal announcements, which often coincide with company launches.

Series B financings:

  • Series B’s experienced a similar pattern to Series A’s, with decreases during 1Q and 2Q 2020 but significant increases by 4Q 2020.
  • The median round size decreased from $30.0M in 4Q 2019 to $26.2M in 2Q 2020—but reached a new quarterly high of $32.0M in 4Q 2020.
  • The median pre-money valuation decreased from $110.0M in 4Q 2019 to $92.5M in 1Q 2020—but reached $120.0M in 3Q 2020 and $115.0M in 4Q 2020.
  • The Series B deal volume decreased from 38 in 4Q 2019 to a 10-quarter low of 37 in 2Q 2020—but reached a new quarterly high of 73 in 4Q 2020.

The Findings—Year-over-Year

1. Size of Financings

The size of early stage financings continued to increase in 2020, especially for Seed financings. The median Seed financing was $4.0M in 2020, up 33% on the year and 90% since 2015. The median Series A was $13.0M in 2020, up a far more modest 5% from the year prior. Meanwhile, the median Series B remained flat at $30.0M. The more rapid growth of the Seed financing continues to drive “multiple compression” versus the Series A over the last 5 years (from 4.8x in 2015 down to 3.3x in 2020).

The “cross-class” comparisons are also instructive. The median 2020 Series A is 14% greater than the 2010 Series B, and the median 2020 Seed is only 20% smaller than the 2010 Series A.

Last year we started tracking the number of “Jumbo Series A’s”, which we defined as greater than $20M. This used to be a rare occurrence due to situations such as a growth equity financing in a mature bootstrapped company or a company spinout. Even after removing those situations from the V21 dataset, we still see a distinct cohort of $20M+ Series A’s – 57 in 2020, up more than 7.1x in 2010.

2. Valuations

Valuations continued to increase for Seed financings in 2020. Median Seed pre-money valuations were $10.9M in 2020, up 9% from the prior year, while Series A’s and B’s remained approximately the same at $30.3M and $100.0M, respectively. A “Rule of 3x” (pre-money to pre-money between rounds) seems to be consistently the norm for the past 5+ years.

3. Sequential Number of Rounds

The average “sequential number of rounds” appears to have leveled off for each round. The average Seed financing was round number 2.1 in 2020, up 1.8x from 2010, and the average Series A’s was round number 2.9, also up 1.8x from 2010. The increase in the average sequential number is driven by the phenomenon of multiple Seed rounds (“pre-seed”, “seed-plus”, “seed-2”, “post-seed”), as well as the massive number of “accelerator rounds”.

4. Cumulative Capital Raised “Prior-to”

The cumulative capital raised prior to a particular financing has increased massively over the past decade. V21 companies raising Seed financings in 2020 had raised an average of $900K, up 14.5x from $100K in 2010 and driven by the increased prevalence of multiple Seed rounds.

V21 companies raising Series A’s in 2020 had raised an average of $4.1M, up 3.4x from $1.2M in 2010. V21 companies raising Series B’s in 2020 had raised an average of $19.2M, up 1.9x from $10.2M in 2010.

5. Years Since Founding

“Years Since Founding” continued to increase for all stages in 2020. The median years since founding for Seed financings was 1.6 in 2020, up 2.6x since 2010. The median for Series A financings was 2.6 in 2020, up 2.1x since 2010. The median for Series B financings was 4.4 in 2020, up 1.6x since 2010. Given the notable increase for Seed financings, we continue to expect to see increases in median ages of companies receiving Series A and B financings in future years.

6. Revenue Generation

We continue to see a stunning rise in the proportion of companies that are revenue-generating when raising Seed financings. 81% of companies raising Seed financings in 2020 were generating revenue, which is more than double from 40% in 2015. Although the quality of the revenues is not clear (and likely includes many former colleagues and accelerator batchmates), it is a new phenomenon that companies in many categories can bring products to market efficiently and make substantial company-building progress in the Seed stage.

88% of companies raising Series A financings in 2020 were generating revenue, and 96% of companies raising Series B financings were generating revenue. Both numbers appear to have reached asymptotes.

7. Time Machine Analysis

As we introduced in prior studies, it is instructive to search for “look-alikes” between current-era financings and predecessor deals from prior years.

This year, a 2020 Seed looks like a 2010 Series A, and a 2020 A looks like a 2010 Series B.

2020 Seed vs 2010 Series A:

  • Valuation (Pre-Money): $10.9M (Seed) vs $10.0M (Series A)
  • Size: $4.0M vs $5.0M
  • Round Number (Sequential): 2.1 vs 1.6

2020 Series A vs 2010 Series B:

  • Valuation: $30.3M (Series A) vs $32.7M (Series B)
  • Size: $13.0M vs $11.4M
  • Round Number: 2.9 vs 2.9

The Data: Updating the V21

Each year we update the V21 dataset and make improvements to the analysis. This year, we naturally added a new year’s worth of data, which impacts some of the prior years as the longitudinal financing histories of newly included companies are added to the sample. In addition, we refined the selection process for removing “multiple” Series A’s and B’s and revised the use of “Deal Type” vs “Deal Type 2” data fields in PitchBook. Much of this work is still done by hand, leaning on the judgement of experienced investors, which is one of the things that makes the V21 analysis unique. As with prior years’ updates, we reran the entire analysis all the way back to 2010 for consistency’s sake.

For readers unfamiliar with the V21, here is a quick recap of the motivation and methodology in last year’s study.

Data Set Note

PitchBook is a core data source for the V21, as it is an industry standard for venture capital financing information. One of our questions has always been, “when does PitchBook data stabilize for a given year such that year-to-year comparisons can be made?” PitchBook data is continuously revised, added, or removed as the research firm gathers more information and as companies emerge from stealth.

The below chart shows a fixed 2020 query of V21 companies and deals by query date from 12/27/2020 to 4/26/2020. Unsurprisingly, the data set increases materially in January and February but stabilizes by mid-March. Given this data, we plan to release future years’ V21 studies by late March.

Final Thoughts

Why is it that 2020 brought us the worst economic downturn since the Great Depression but the most rapid venture market recovery in history?

One factor is the growing importance of technology to the economy as a whole, and in particular to the “post-pandemic” economy. The technology sector’s share of global GDP has been steadily growing for decades; its share of global market cap even more so. Even outside the tech sector per se, technology drives an ever larger proportion of competitive advantage, which is why so many companies are desperately trying to refashion themselves into truly “Modern Enterprises”. After the 2009 Great Recession, technology led the way to recovery. In 2020, it offered an alternate reality, a parallel universe where the recession seemingly never happened and demand grew as businesses and consumers sought out viable ways to function in the COVID era.

Another key factor is the absence of alternatives for capital seeking a return. With interest rates parked at historic lows and central banks flooding the markets, investors have been left with little choice but to invest in equities (or cryptocurrency). Equity investors, faced with rising multiples in the public markets, dove into private markets. Growth stage investors, faced with skyrocketing valuations, embarked on earlier stage strategies. It should therefore not be a surprise that in a capital market like this one, startups and cryptocurrencies would be big winners.

How long will those two factors continue to propel the longest bull market any of us have ever seen? The first factor—the growing importance of technology to the global economy—is here to stay. The second factor—absence of alternatives for capital seeking a return—is vulnerable to political realignments and policy choices and can turn on a dime. So far in 2021 tailwinds continue to blow favorably for early stage financing, but potential shifts are already visible on the horizon and may make this year just as wild a ride as the last.

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