Venture Capital in 2021: Bigger, Faster and More Global
Venture Capital is changing. Fueled in part by the decoupling of capital and geography that I wrote about a few months ago, new investment rounds for the best scale-up stage companies are bigger, faster and more global than ever before.
According to Crunchbase data released last week, global venture funding hit an all-time high of $125B in the first quarter of 2021, dominated by late-stage funding that, among other things, minted 112 new unicorns (privately-held companies with a $1B+ valuation) in less than 100 days.
And while much is likely to be written in the next few weeks about how these financing rounds are getting bigger and moving faster than ever before, I believe the real story here is about where this is happening.
Let’s take a look at a few examples of recent venture capital headlines.
On March 23rd, Loft, a tech-enabled real estate platform, raised $425M at a $2.2B valuation from New York-based D1 Capital Partners and a host of other top tier funds (e.g. a16z, Advent, Altimeter, DST, Tiger Global and more). Loft is less than 3 years old and is based in Sao Paulo, Brazil.
Just a few days earlier, payments specialist Flutterwave raised $170M at a $1B+ valuation from Tiger Global, Insight Partners, Greycroft, Salesforce Ventures and others. 5-year-old Flutterwave targets the African market from its HQ in Lagos, Nigeria.
The first days of April have brought a flurry of new funding rounds for “unicorns” in unexpected places. In the span of just over one week, we saw Mexico’s car resale marketplace Kavak announce a $485M Series D round from D1 Capital Partners, Founders Fund, Ribbit Capital and BOND at a $4B valuation; Uruguay’s cross-border payment platform dLocal raise $150M from Alkeon, BOND, D1 Capital Partners and Tiger Global at a $5B valuation; and Spain’s on-demand delivery company Glovo close a $530M Series F from Lugard Road Capital, Luxor Capital and others at a valuation well north of $2B+.
Meanwhile, elsewhere in the ever-expanding world of private company financing, Southeast Asia’s Grab is going public via a SPAC led by Altimeter at a nearly $40B valuation, and India’s red-hot late-stage VC market saw six new unicorns within the first ten days of April.
What exactly is going on here?
While our team predicted back in January that the global herd of unicorns ($1B+ companies) would grow in 2021 — particularly in emerging markets and in areas like Fintech, Edtech and Healthtech — we certainly didn’t anticipate things getting this big, this fast. So, what exactly is going on here? I believe there are three major drivers of what we are seeing in this current VC market:
- The market believes the winners will be big — very big
As we “pull the future forward” with all of the well-chronicled adoptions of technology and changes in user behavior brought on by COVID-19, the credible upper bound of what these emerging market leaders can achieve has increased dramatically. Success stories like MercadoLibre [NASDAQ:MELI] in Latin America (which briefly hit a $100B+ market cap in January) and Sea Group [NYSE: SE] from Southeast Asia (valued at nearly $130B) have helped investors reimagine what is possible for technology leaders outside of the US and China. In brief, they are now thinking much bigger, and aiming much higher.
Outside of the US and China — the world’s two dominant VC markets for the past several decades — the conventional wisdom used to be that there wasn’t a real role for late-stage global investors because the ultimate size of the prize “just wasn’t big enough.” The recent listing of Korea’s Coupang — with a market cap of $75B+ — is the latest example in a parade of technology firms from markets outside the US and China reaching new heights. Canada’s Shopify [NYSE: SHOP] is valued at $150B+ while Australia’s Atlassian [NASDAQ: TEAM] and Sweden’s Spotify [NYSE: SPOT] both have market caps north of $50B+.
Viewed against this backdrop, it makes all the sense in the world for late stage investors like Alkeon Global, Coatue, Tiger Global, Dragoneer, Altimeter and others to pour capital into UiPath — originally from Romania — at a $35B valuation. Or for Tiger to lead the Series C for Checkout.com — built out of Europe and Dubai where founder and CEO Guillaume Pousaz sits on the board of our Endeavor UAE chapter — at a $15B valuation. For more than two decades Endeavor has focused on helping the best founders in emerging and underserved markets around the world to “think big.” It seems that many public and private market investors are now right there with us, thinking bigger than ever before.
2. A dramatic surge in late-stage private rounds led by traditionally public stock market investors
In the acceleration of a trend that was already happening over the past few years, the first quarter saw a dramatic surge in late-stage private investing by hedge funds, crossover funds, asset managers and other firms more traditionally associated with the public markets. Chief among these, Tiger Global has led an astonishing 60+ private investments in the first three months of the year, or roughly four investments per week.
As detailed in The Information last week, Tiger’s “newest $6.7 billion VC fund is nearly double the amount it initially targeted.” $6.7B feels awfully big to those of us who spend our time exclusively in the private markets. But to put that in perspective for the folks running Tiger, consider that, overall, the firm has $65 billion in assets under management — up 85% from just over a year ago.
As reported by The Information, “the firm’s current speed, which echoes the pace of SoftBank’s private tech investments starting four years ago, comes as more public stock market investors pursue stakes in privately held companies.”
To that end, while Tiger is certainly leading the charge into late-stage private rounds, they are far from alone. Daniel Sundheim’s D1 Capital has led or participated in the recent rounds of Loft, dLocal and Kavak in Latin America. Glovo’s latest fundraise was led by a hedge fund Luxor Capital Group and its affiliate Lugard Road Capital. Alkeon Capital, a hedge fund, has had its most active year ever in the first quarter alone (according to Pitchbook data), investing in UIPath, dLocal, and Brazil’s Hotmart, among others. In fact, study any of the recent funding announcements and you are likely to see the likes of Tiger, Alkeon, Coatue, Dragoneer, Altimeter and others alongside marquee VC and growth equity investors like Sequoia, Accel, a16z, Founders Fund, Insight, General Atlantic, Softbank, TCV, etc.
Why is this happening? To be certain, the forces driving this influx of capital into the late-stage private markets are multifactorial. Most folks I have spoken with in the last few weeks have cited the overall macro-environment, cost and availability of capital, robust public market and IPO activity, and the boom of SPACs (“Special Purpose Acquisition Companies”) and their accompanying PIPEs (“Private Investment in Public Equities”) as key inputs.
From the founders’ perspective, it seems many of these financings are driven by a desire to move their companies one step closer to becoming public companies. In these rounds, entrepreneurs tend to involve crossover investors for their “ability to anchor an IPO” and/or “deep expertise in public markets.”
3. The End of Geography (or at least the temporary suspension thereof)
When I wrote this piece in January on redrawing the map, one of the titles that ended up on the cutting room floor was “the end of geography.” I discarded it for being too dramatic. Time zones still matter, I thought. Proximity matters. Surely people would travel again soon.
But as I look at the global venture activity of the first 100 days of 2021, I should have been more bold. For if this is not the end of geography, it is, at the very least, the “temporary suspension” of its importance. Each day brings news of new blockbuster funding rounds in underserved markets. In my 15+ years of working with the top founders in emerging markets from Latin America to the Middle East to Southeast Asia, I’ve never seen anything like this.
Thanks to great data from our friends at Crunchbase, we can do a quick historical comparison of what’s going on. Let’s look at “unicorn” funding rounds over the past few years during this exact time period (i.e. the month of April).
- April 2016: 3 private funding rounds total for companies valued at $1B+, all in the US or China
- April 2017: 6 out of the 7 funding rounds in $1B+ companies were in the US and China, with one in South Korea
- April 2018: 6 funding rounds into $1B+ companies, all in China
- April 2019: 5 out of 6 in the US or China, with the one exception being Latin American delivery juggernaut Rappi
- April 2020: 6 out of 7 in the US or China, with one “Rest of World” (RoW) representative from Belgium.
This year, in the first 7 days of April, there have been 15 announced funding rounds for $1B+ companies, more than double the number that took place in the whole month of April in previous years. And what’s really interesting is to look at where this is happening. According to Crunchbase, of these 15 funding rounds, 4 were for US-based companies and zero were from China. 11 out of the 15 came from markets beyond China and the US, including India (5 companies), Mexico, Singapore, South Korea, Australia, the Netherlands and Uruguay.
With investing via Zoom becoming the norm, physical geography has certainly become less important. Only time will tell if this is actually “the end of geography,” but in the first 100 days of 2021, it certainly feels like we are trending in that direction.
Where do we go from here?
What we are witnessing today in the world of venture capital and scale-up entrepreneurship is truly unprecedented, and much remains to be seen. How will these unicorns transition from highly-valued private companies to highly-valuable public ones? With SPACs, PIPEs, and crossover investing on the rise, will the line between private and public equity continue to be blurred? And what will the impact of all this increased liquidity in emerging markets mean for the next generation of angel investors and entrepreneurs?
We don’t have the answers to these questions, but I, for one, am excited to find out. At Endeavor, we’re all about helping entrepreneurs think big, and providing the guidance and networks to help them get there. Although more money is flowing into Endeavor’s markets, and the upper limits of what is possible are being reimagined, we are well aware that most “overnight” success stories are 10–15 years in the making.
We simply can’t know if the trends captured here will still be with us in six months, or six years. But what we believe is here to stay is investors believing in and backing great entrepreneurs in emerging and traditionally underserved markets. We look forward to helping more founders in more places dream and win big in 2021 and beyond..the world is ready!
Allen Taylor (@aktaylor) is Managing Director of Endeavor Catalyst, an innovative, rules-based co-investment fund through which Endeavor invests into its portfolio companies in emerging and underserved markets. Launched in 2012, Endeavor Catalyst has $250M in Assets Under Management (AUM) across three funds and has made 180+ investments across 30+ markets to date. You can reach Allen on LinkedIn here.
