Eighteen months into the COVID-19 pandemic, the VC industry has continued to prove its resiliency while also directly supporting the country’s economic recovery and strengthening public markets. VC-backed public listings have eclipsed previous annual records and generated $513.6 billion in exit value YTD for limited partner investors, founders, and employees. Those VC-backed IPOs also accounted for more than two-thirds of the total US listings YTD, emphasizing VC’s contribution to the health of public markets. The VC industry continued to build on the strength of previous quarters as it roared ahead, setting records in Q3 and putting 2021 on track for another record-breaking year for venture investment, exit activity, and fundraising, despite mixed macroeconomic signals and a prolonged pandemic.

$82.8 billion in capital was deployed across 3,518 deals in Q3, following similarly strong performance during Q1 and Q2, leading to a total of $238.7 billion invested YTD. Investment activity was healthy across angel & seed, early, and late stages with deal size increasing for the latter two, continuing a long-term trend. $49.5 billion was invested in mega-rounds ($100 million+), bringing the YTD total invested in mega-rounds to $136.5 billion, nearly double the record $76.7 billion invested in 2020. The growing participation of well-resourced nontraditional investors such as mutual funds, PE, hedge funds, and crossover investors in the venture space has contributed to the rise in deal size and valuations, reshaping the industry landscape in the process.

$187.2 billion in exit value was realized in Q3, contributing to a total of $582.5 billion YTD—already 101.6% higher than 2020’s record of $289.0 billion. IPOs are having a blockbuster year with 221 occurring YTD. Among sectors, software experienced boom times in Q3 with 156 exits—following earlier quarterly records of 163 and 171 exits for Q1 and Q2, respectively. This rising tide also appears to be lifting boats for female founders, who have realized $57.7 billion in exit value YTD, nearly double the previous annual high of $24.1 billion in 2020. As for SPACs, 413 vehicles raised a combined $109.4 billion through Q3, and mergers continue to occur, although the broad selloff since February and underperformance by many SPAC combinations raise questions concerning the viability of these vehicles as a longterm alternative to IPOs.

Returns generated from high exit values in recent quarters have enabled limited partners to put capital back to work via new VC allocations, which, coupled with rising deal sizes, ensured that fundraising among venture funds remained strong with $96.0 billion raised this year, already an annual record high. Concentration of capital continues to trend as more capital is being raised by a smaller number of VC funds. Mirroring the growth in deal size, average fund size reached a record of $194.7 million YTD, eclipsing the previous record of $165.9 million in 2020. Already in 2021, 19 funds of $1 billion or more have been raised—more than in any previous year. These 19 funds together represent some $38.7 billion in capital, or 40.4% of all funds raised YTD. However, new fund managers have not witnessed the same boom in capital commitments. The decline in first-time fundraising, by both fund count and capital raised, has continued in 2021.

If there are any clouds on the horizon for the industry, they may come in the form of the evolving pandemic, as well as economic and policy uncertainty. The spread of the highly contagious Delta variant has made the trajectory of the domestic COVID-19 outbreak uncertain despite healthy levels of vaccination in parts of the country. And while positive macroeconomic signals have brought some optimism—real GDP grew at an annual rate of 6.6% in Q2, and the unemployment rate has fallen to 4.8%—six million fewer workers remain employed compared to this time last year, employers are grappling with supply chain disruptions and worker shortages, and inflation is running at a 30-year high.

Policy changes are also looming. Trillion-dollar spending packages making their way through Congress could contain provisions that change the tax code in ways that may alter investor behavior and alignment of interest, influencing investment decisions going forward. As well, tapering of asset purchases by the Federal Reserve could impact interest rates and valuations in the public markets, which would have implications for exit activity. How these uncertainties are resolved in Q4 should make for an exciting bookend to another historic year for VC.