SVB Healthcare Investments & Exits 2022

The SVB Healthcare Investments & Exits 2022 edition covers data for the entire year of 2021. Healthcare trends reveal venture fundraising almost doubled in 2021 over the previous year, with phenomenal growth across sectors: biopharma, healthtech, dx/tools, and device. Download the report for a deep dive into the current healthcare landscape and critical trends to watch.

Key Takeaways: 

  • 30% higher investment – Funding for healthcare companies exceeded $80 billion, beating 2020’s record by more than 30% in the US and Europe.

  • Record dx/tools exits – IPOs tripled and M&A doubled over 2021.

  • 157% more healthtech investment dollars – 42 healthtech unicorns emerged this year. This is more than 4x the activity of 2020.

Q4 2021 PitchBook-NVCA Venture Monitor

This report was updated on January 14, 2022 to account for an error in deal data. 

Fundraising tops $100 billion in a record year for venture capital 

The VC industry has closed another remarkable year for the record books, despite the ongoing pandemic and growing adversities such as economy-wide supply chain woes and labor shortages.

The Q4 2021 PitchBook-NVCA Venture Monitor, sponsored by Insperity, depicts how the frenetic pace of dealmaking, exits and fundraising in 2021 toppled previous records, even as the pandemic’s future trajectory remains unknown.

Highlights include:

  • US VC-backed companies raised nearly $330 billion in 2021–roughly double the previous record of $166.6 billion raised in 2020.
  • Nontraditional investors such as corporate VC funds, hedge funds, PE firms and sovereign wealth funds participated in nearly 77% of total annual deal value.
  • Exits were a huge part of the story of 2021, with more than $774 billion in annual exit value created by VC-backed companies that either went public or were acquired.
  • Early-stage VC deal activity in 2021 nearly doubled the prior record and eclipsed $80 billion for the first time ever.

How are Black & Latina Women Investors Breaking into VC?

See how 204 Black & Latina women broke barriers entering the industry

Breaking into venture capital is notoriously difficult, a foot in the door requires a precarious combination of experience, connections, and timing. But the odds are especially stacked against diverse women. Despite these odds, they’ve gone on to establish their own funds and create opportunities for others.

The 2021 Black & Latina Women in VC report analyzes the professional & educational backgrounds of 108 Black and 96 Latina women in the U.S. VC ecosystem in investment roles. We identify themes and patterns to learn how they’re breaking into and thriving in venture capital roles.

EVCA 2nd Annual Pre-partner Compensation Survey

EVCA released their 2021 compensation survey with 246 respondents from the EVCA community. This edition is the most accurate and comprehensive junior investor compensation report in the industry to date.

Alumni Networks in Entrepreneurial Financing

One in three deals in the early-stage financing market involves an investor and founder from the same alma mater. This research shows that founders’ connections to early-stage investors through shared education networks are more important than school academic quality or shared geography in facilitating access to funding. Early-stage investors tilt their portfolios toward startups from their alma mater and place larger bets on these firms. Connected investments outperform the same investors’ non-connected investments. Their results are stronger where information about founder abilities is likely less clear.

SVB State of the Markets: Q4 2021

Closing out a stellar year of record-breaking performance, the innovation economy prepares for a winter slow down.

Key Takeaways:

  • Liquidity of private markets remains strong this year

    2021 was another record year with 52 US VC-backed tech IPOs and an anticipated 1,288 US VC-backed M&A deals. Conversely, de-SPAC activity has slowed down from Q1’s frenzy with 455 SPACs in Q3 searching for targets.

  • Facing the headwinds: Inflation increases

    Supply chain problems exacerbated by US port congestion along with an increased money supply and a weakened US dollar has resulted in the largest rise of inflation since September 2008.

  • A new approach to venture capital

    Led by Tiger Global, hybrid private equity/venture capital investors willing to pay unprecedented valuations to get the “best” companies are deploying capital faster, disrupting the traditional venture model resulting in an expected 141% increase in the number of deals over $100 million.

Examining the Returns of 2021: The Financial Returns of Diverse Private Equity Firms

Diverse-owned private equity firms continue to outperform their benchmarks, according to “Examining the Returns 2021: The Financial Returns of Diverse Private Equity Firms,” a study released by the National Association of Investment Companies (NAIC). When combined with findings previously reported in NAIC’s 2019 and 2017 studies, these results confirm a long history of benchmark-beating performance by diverse investment managers.

Authored by Meredith Jones, Partner, Global Head of ESG for Aon, the biennial report is the industry’s only quantitative study measuring the performance of diverse-owned private equity firms against established benchmarks. The report illustrates diverse managers’ acumen in sourcing deals and executing their investment strategies, even during uncertain economic conditions. It is also a critical tool used in NAIC’s ongoing efforts to increase capital allocations to diverse-owned alternative investment firms, who continue to manage just 1.3 percent of the industry’s $69 trillion in assets.  This troubling statistic continues in the face of a growing number of conversations regarding diversity and inclusion within the industry and a history of outperformance by diverse firms. Still, many institutional investors continue to overlook these accomplished investment managers.

Measuring Venture Capital's Impact on the Economy_Meta

Measuring Venture Capital’s Impact on the Economy

Measuring VCs Impact on the Economy

Producing new insights and sharing third-party or academic research on the impact of venture capital (VC) is a key focus for Venture Forward in its mission to drive the narrative of VC and inform the public about the critical role the VC industry plays in the U.S. economy. Venture capital as an investment vehicle is oftentimes misunderstood, and startups receiving VC funding can be mischaracterized with other segments of the economy. Research, like the paper highlighted in this blog post that explores the impact of VC investment on large company growth, the benefits that accrue from it, and the regulatory conditions that allow for such growth, is important to both VC investors and industry outsiders in understanding the broader impact of the venture industry beyond financial returns. This post is the second in a series of articles that discusses research exploring the links between VC activity and the broader economy.

Venture Capital’s Contribution to Creating Highly Successful and Innovative U.S. Public Companies

How important is venture capital to the U.S. economy? “Very” is the answer, according to an updated research paper by Professors Will Gornall of the University of British Columbia and Ilya A. Strebulaev of Stanford University. Measuring an industry’s impact on the economy is an interesting endeavor, given the varied approaches in deciding which metrics to focus on and how to measure them. Gornall and Strebulaev’s method of measuring venture capital’s impact focuses on analyzing the contribution of public U.S. companies founded within the last 50 years that were previously VC-backed, and then comparing them to contributions made by all public U.S. companies founded within that same period. This approach neglects the contributions of private VC-backed companies to the economy, but the authors justify their sample selection by noting that the most successful and impactful U.S. companies are publicly owned. The authors point out, for instance, that 79% of the top 500 U.S. companies by revenue are public.

The authors’ findings are striking and underscore the importance of venture capital in developing some of America’s marquee companies that have fundamentally transformed society and reached virtually every American. As an example, the six largest U.S. public companies by market capitalization (Apple, Microsoft, Alphabet, Amazon, Facebook, and Tesla) all received most of their early external financing from venture capitalists. These six companies alone have contributed over $7 trillion dollars to the U.S. stock market over the past decade and account for more than one-quarter of the U.S. stock market growth over that period. Emphasizing the importance of VC to the success of American industry and equity markets is the percentage of U.S. public companies that began as VC-backed startups. Considering only companies founded after 1968 and going public after 1978 (corresponding to the advent of the modern VC industry), VC-backed companies account for half of such public companies by number and three-quarters by market value.

Eye-catching though the contributions to market capitalization might be, just 56% of Americans own stock, according to recent Gallup research, so other findings by the authors may provide a better sense of how venture capital benefits society more broadly. One such finding is the enormous contribution of VC-backed companies to innovative activities. Gornall and Strebulaev find that VC-backed companies account for 62% of research and development (R&D) spending and 48% of patent value for the companies in their sample. Restricting this consideration once again to companies founded after 1968 and going public after 1978, VC-backed companies account for 92% of R&D spending and 93% of patent value. Other statistics that leap out from the study are the number of employees who, as of 2020 or the most recent fiscal year, work at these companies (6.1 million employees), annual revenue ($2.8 trillion), annual net income ($291 billion), and total annual taxes paid ($55 billion).

Report Highlights - Venture Forward Research Piece

Regulatory Changes and Their Importance to Fostering a Vibrant VC Industry

An important piece of Gornall and Strebulaev’s study is its exploration of whether VC financing had a causal impact on the success of these U.S. public companies. A skeptic could argue these companies would have flourished without early-stage venture financing and that the correlation between commercial success and VC investment is purely coincidental. To address this critique, the authors reviewed historical regulatory developments in the U.S. that coincided with the rise of the domestic VC industry, followed by a cross-country comparison of contemporaneous VC activity among developed economies.

The crux of this analysis is an evaluation of the impact of the 1974 Employee Retirement Income Security Act (ERISA), which reduced the legal risk for institutional investors to invest in assets perceived, at the time, as excessively risky. ERISA allowed pension fund trustees to invest in the “alternative” asset space for the first time, making it easier for VC funds to secure institutional capital. The 1979 clarification by the U.S. Department of Labor of the “prudent person” statutory standard (also historically referred to as the “prudent man” rule) helped accelerate the rise of these fund types. This standard stated that the “prudence of a particular investment decision should not be judged without regard to the role that the proposed investment or investment course of action plays within the overall portfolio” (i.e., a holistic view of an entire investment portfolio should be used when considering the prudence of any single investment in the portfolio).

Importantly, these regulatory changes were limited to the U.S., and similar adjustments to investment rules did not occur in other developed countries. In peer economies, therefore, pension fund trustees and other managers of substantial long-term capital like insurance companies and bank trusts essentially remained barred from investing in private and illiquid assets. The ERISA reforms thus serve as a useful natural experiment that allows for a comparison of the creation of successful new companies in the U.S. and other large, developed countries.

For this exercise, Gornall and Strebulaev chose to compare developments in the U.S. against contemporaneous occurrences in other G7 countries (Canada, France, Italy, Germany, Japan, and the U.K.). Their findings show a marked difference in the trajectories of VC activity and industrial growth, underscoring the importance of prudent regulation for producing an environment in which companies can scale and thrive as public entities. To summarize their findings: Prior to ERISA, the U.S. was very similar to other G7 countries in terms of new company creation. Following ERISA, a clear divergence can be observed during the following 50 years when the U.S. created numerous new, large companies while other G7 members did not. Significantly, 88 out of the 300 largest U.S. public companies received venture financing, compared to just 11 out of 300 companies in the other G7 companies. Removing the VC-backed companies from the analysis flips the script with the U.S. underperforming other G7 countries, underscoring the important role that venture financing played in the success of America’s largest public companies.

Top International Companies Founded in Each Decade

Gornall and Strebulaev Stats - Venture Forward Research Piece

*Illustration depicts share of top 300 public companies from the U.S. and top 50 public companies from each of the six other G7 countries. Source: Gornall and Strebulaev (2021)

In conclusion, VC activity is closely linked with the success of a large share of the most successful U.S. public companies, unlike in other developed economies. This VC activity can be tied to regulatory changes and clarifications dating back some 50-plus years ago that allowed for the rise of VC funds and more widespread investments by institutional investors into alternative assets. These changes to investment rules of the road were followed by decades of large company creation in the U.S., which has contributed to substantial amounts of innovation, employment, and tax revenue, all of which are beneficial to the economy. If past is prologue and these benefits are to persist, prudent regulation that allows for a healthy VC industry like ERISA and the “prudent person” rule would appear to be essential.

America’s Entrepreneurial States: Supporting Entrepreneurs to Help Drive the Economy

Heartland Forward released a new report titled “America’s Entrepreneurial States: Supporting Entrepreneurs to Help Drive the Economy,” which analyzes the entrepreneurial ecosystems of each state and places them within a new State Entrepreneurial Index. The report lays out recommendations to spur entrepreneurial growth, including funding entrepreneurial support organizations, improving access to high-speed internet, investing in higher education and teaching entrepreneurial thinking in K-12 schools. In addition to the report, Heartland Forward has designed an interactive calculator, found here, allowing users to see the expected shift in ranking based on changes to risk capital, internet access and educational attainment.

Venture Forward Mentoring Forward

Mentoring Forward

Welcome to our Mentoring Forward series! We’re highlighting an incredible group of mentors and the positive impact the VC University Mentorship Program has had on VC University scholarship recipients. Since launching in 2020, the Mentorship Program has had four cohorts with a total of 121 new and early career VCs from historically underrepresented backgrounds, each who have been paired with one experienced VC mentor and one peer VC mentor. Thanks to these mentors, we are working together to create a more inclusive and diverse VC community.

Read more from Jeff Clavier of Uncork Capital, Heidi Roizen of Threshold Ventures, Faith Voinovich of Ohio Innovation Fund, Nick Washburn of Intel Capital and Jessica Yi of Norwest Venture Partners about their experiences as mentors and why this is an important program that they support.