Record $64 Billion Venture Funding in Q1 2021, Reports Ernst & Young
The venture capital industry is known for high-risk, high-return situations, as Jeff Grabow, the venture capital leader at Ernst & Young, points out. Early 2021 saw heavy investments in food delivery businesses, online brokerages, and Elon Musk’s SpaceX, resulting in an unprecedented level of venture funding in the United States. Crunchbase data analyzed by Ernst & Young indicates that venture-backed firms raised a historic $64 billion in the first quarter of the year.
Despite the ongoing COVID-19 pandemic, the industry is showing remarkable resilience, and Grabow believes that the worst is behind us. As he puts it, “This record quarter is pretty impressive. Despite technically still being in a pandemic, we are trying to emerge from it.”
Looking forward, the venture capital industry is gearing up for another strong year. Grabow wonders if we will see a $200 billion venture capital funding year in 2019. Although COVID-19 disrupted business plans in the early part of the year resulting in two quiet quarters, the late-stage market picked up the pace and continued to thrive since then.
According to Grabow, venture capital financing of at least $100 million in the first quarter of 2019 was up over half of the amount raised in the previous year. The funding round of Cruise in January, led by Microsoft in partnership with General Motors, was a major highlight of the quarter.
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Ernst Young US 64b Q1 LevyCNBC
In March, Gopuff, a digital convenience store, raised $1.15 billion, making it the second-largest deal of the quarter. Databricks, a cloud data analytics software provider, and Robinhood investing app, which faced a cash crunch after the GameStop frenzy, also secured $1 billion each during the period.
SpaceX, a private space exploration company, raised $850 million in February, with a valuation of $74 billion. Stripe, a payment software company, also had a top deal with a $600 million funding round and a $95 billion valuation.
The earlier-stage market was just as hot as the mega-round market in the first quarter, as it saw record Series A and Series B funding, according to Jeff Grabow.
The surge in venture capital investing is also tied to the rise of SPACs (Special Purpose Acquisition Companies), which purchase private firms and later distribute them to the public, serving as an alternative to late-stage financing. SPACInsider data indicates that 306 SPACs raised $98.9 billion by the end of 2021, surpassing the previous year’s record of $83.4 billion.
Despite the additional risk associated with venture investing, Grabow believes the rewards are worth it: “Ventures are risky, but they offer excellent returns,” he said.