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How VC stayed resilient in 2020 — and what’s in store for 2021

Even as the pandemic unfolded, venture capital stayed resilient and experienced a surprisingly strong 2020.

This year’s strong results were surprising and attributed to several factors: 

  • Companies raised capital to sustain and preserve in case of a prolonged downturn.
  • We saw record mega-round activity.
  • Technology was seen as a solution and problem solver.
  • The quick rebound of public markets and opening of liquidity (SPACS, IPOs and Primary Direct Listings).

We did it: 2020 is officially behind us and with vaccines rolling out across the US, financing opportunities emerging for the year ahead have the makings of overshadowing the challenges of the pandemic. Q4 equity financings in US VC-backed companies totaled $37.6 billion, which was not quite as robust as in Q3. However, overall, the numbers show surprising resilience and reasons for optimism as we start 2021.

Driven by deep uncertainty early in the year, fundraising took a defensive posture, as companies cut expenses and doubled down on efforts to grow more efficient as the pandemic began to take hold. We ended the year at $142 billion raised. Corporate investment declined this year but was replaced by an increase in private equity participation. We continued to see a significant amount of investment go to later stage companies. Underpinned by an increase in megadeals ($100m or more), 37% of all capital went to later stage deals. We saw 92 this past quarter and more than 300 for the year. 

With more clarity around vaccine timelines and the political environment, the outlook continues to look more favorable. Companies have retrenched and adjusted their plans, and today the market overall is in far better shape than I would have imagined nine months ago. And with the Federal Reserve unlikely to raise rates for two years or more, institutional investors will continue to seek yield, funneling money into the venture asset class. This will continue to drive capital formation.

Technology as a key driver and problem solver

Necessity is the mother of invention and the pandemic has created lots of necessity. Digital transformation and technology enablement have created opportunities for new solutions and enterprising companies to address gaps and fulfill new expectations. This, combined with existing companies requiring additional capital, has propelled technology to its best quarter and year ever. In Q4 2020, there was over $11 billion invested in technology, ending the year at $41.2 billion. The software subsector notched $31 billion of activity for the year overall, another record, despite the pandemic.

Although off 10% from Q3, the health and life sciences sector was the second strongest, with increased interest in telehealth and at-home diagnostics and remedies. Totals for the industry surpassed $39 billion — a decade ago, that figure was only $9 billion. Biopharmaceuticals are the primary reason for that success in what has been another record year. This is due to aging populations requiring more therapeutics, combined with the rapid digitization of healthcare services. This is unlikely to recede in a post-pandemic environment.  

The business services subsegment saw over $31 billion invested during 2020. Software continues to dominate the world as we work from home. We are finding that while video conferencing works, there are many additional tools needed if we are to operate digitality at scale. This will be a long tail event that will drive significant activity.

Regional outlook

Throughout 2020, the Bay Area remained significantly ahead of all other regional markets in garnering investment capital, yet it lost a bit of its prominence as investors seized upon the shift to remote working prompting numerous companies and employees to relocate to less expensive cities or states. What we are seeing is that companies no longer need to be in the Bay Area to fundraise. With the right effort and strategy, it’s possible to raise money from anywhere. In the first two quarters, the Bay Area accounted for slightly less than half of deals dollar-wise, but that percentage fell to 35% in Q4. New York and Boston round out the top three. San Diego had a record year and Q4, ending up at $2.8 billion.

Based upon the regional data we’ve seen in the past few quarters, there may be signs of a realignment of investment dollars in the months ahead.

Looking ahead

With all pillars of the venture ecosystem running hot, it makes for a dynamic outlook. The bull VC market appears to be poised to continue to run. And, if a pandemic cannot stop it, the only thing that can at this point appears to be adverse financial returns, which would take years to materialize, if they happen at all.

Several factors have aligned across the venture ecosystem to create and extend the current momentum:

Fund formation

  1. Prolonged cheap interest rates have pushed more investors into the venture asset class seeking yield — this will continue.
  2. Twenty years of technology being pushed into the company creation process and lowering the cost to start companies. This has brought thousands of angels into the investing landscape and many have gone on to raise institutional venture funds.

Capital deployment

  1. Large numbers of companies that continue to need capital as they scale will drive more investment levels.
  2. Digital solutions proved to be key to many sectors during the pandemic, especially across healthcare (treating patients with the virus and vaccines), logistics (delivery services), mobility (working from home), and going digital (operating companies from home).
  3. Technology enablement of industries- this is just starting and has been accelerated by the pandemic.


  1. We have seen many unicorns go public with outstanding aftermarket performance, fulfilling the promise of venture investment and returning capital. I anticipate many more companies to follow.
  2. Liquidity innovation and the use of SPACS in this market has provided more options to get liquid, particularly for companies that need access to large amounts of capital to execute or for older companies that don’t have a big growth story but are solid businesses. 2020 was a record-breaking year for SPAC activity and we expect to see this trend continue.
  3. To come: how primary direct listings can help venture-backed companies get liquid and return capital.  

The views reflected in this article are those of the authors and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY.


Q4 equity financings in US VC-backed companies totaled $37.6 billion, which was not quite as robust as in Q3. However, overall, the numbers show surprising resilience and reasons for optimism as we start 2021.

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