VC exit values achieved second highest total ever in Q3 despite continued economic uncertainty

Though external economic headwinds due to the coronavirus pandemic persisted in the third quarter, venture capital (VC) exit activity saw a major uptick, achieving the second highest exit values on record, according to the PitchBook-NVCA Venture Monitor, a quarterly report on VC activity jointly produced by PitchBook and the National Venture Capital Association (NVCA). 

The positive momentum from the stock market in recent months, particularly the performance of new listings, has encouraged companies to move forward with IPOs if they were prepared and considering that exit route. On the dealmaking side, this report includes PitchBook's proprietary deal estimation methodology for the first time, which will be included in all future reports, to better account for investment data reported after the quarterly publication date. 

Investors have continued to consolidate capital into their most valuable and mature businesses leading to a consistently high volume of VC mega-deals. The explosion of this slice of the VC ecosystem has been one of the most drastic changes over the last 10 years and has actually ramped up throughout the COVID-19 pandemic. One big reason behind the increase is that nontraditional involvement, including sovereign wealth funds, mutual funds, and hedge funds, has remained in play despite the economic slowdown. Fundraising activity remained strong in the third quarter, putting 2020 on track to set a record high for total capital raised. As the COVID-19 pandemic progressed, fund managers with established LP relationships and a record of strong fund performance have not experienced many hiccups when it comes to raising new funds.

"Despite continued uncertainty throughout the year, the rebound in public markets has given investors' confidence. LPs are recommitting with proven GPs raising successor VC funds," says John Gabbert, founder and CEO of PitchBook. "As investors seek growth opportunities in a low-rate environment, the growth potential of the venture strategy continues to entice both traditional LPs and nontraditional investors. Additionally, we saw the return of large IPOs during the third quarter and expect more in the coming months as VC-backed companies look to capitalise while the IPO window remains open."

"The consolidation of capital continues toward larger, later stage companies and established VC funds. While both of these trends are potential signs of concern for the long-term health of the VC lifecycle, overall the ecosystem has shown strong resiliency in the past six months," says Bobby Franklin, President & CEO of NVCA. "Many types of tech and life science companies have seen noteworthy growth during the pandemic, and new innovations spurred by startups are being rapidly adopted across the country. There are still many uncertainties on the horizon, including the upcoming presidential election and continued impacts from the COVID-19 pandemic, but the strength of the ecosystem is encouraging to see, especially since VC and startups will be crucial to the economy's recovery."