Startup Funding Touches New Records Amid Pandemic

(Bloomberg) -- What began as a desperate year for startups, characterized by mass layoffs as the pandemic took hold, has turned into a record venture capital funding haul. 

Despite the economic tumult wrought by the coronavirus, startup investing in the U.S. reached a record high of $130 billion in 2020, according to a new Money Tree report from PricewaterhouseCoopers/CB Insights. Companies like Instacart Inc. and Stripe Inc. helped drive the surge by raising hundreds of millions apiece, even though the total number of funding rounds was lower than in 2019. The year also saw an uptick in funding for several cities outside the Bay Area, long the center of the startup universe. 

Venture capital funding in 2020 rose 14% from 2019, according to the report, which includes private equity and debt investments as well. Last year also saw an increase in megarounds, meaning deals larger than $100 million, even as the number of funding rounds decreased, particularly for very young startups. 

The largest deals were a $1.9 billion infusion into Space Exploration Technologies Corp. and $1.5 billion in funding for Epic Games Inc., both giant funding rounds that were emblematic of the increasing muscle of private equity and mutual funds willing to write large checks to late-stage tech companies. In 2016, megarounds represented just 25% of the total money invested. That number increased to 49% in 2020—higher than ever—the report found. Large corporate players, including SoftBank Group Corp., Google Ventures and Uber Technologies Inc. also helped drive the rush to fund large startups.

Another record for 2020: The number of Unicorns ticked up to 225 in the U.S., as more companies achieved a valuation of $1 billion or more for the first time.Meanwhile, early-stage companies struggled. The number of total deals decreased for the second year in a row, sinking to 6,022. In the fourth quarter, the most acute pullback occurred in seed funding rounds, followed by Series A deals.

The much-talked-about Silicon Valley exodus showed up in the data to a limited extent. California retained its title as the top spot for venture dollars last year. Companies based in the state, combined with established tech hubs New York and Massachusetts, attracted 74% of all U.S. funding. But new tech hubs gained ground. San Diego, Miami, Denver and Atlanta all more than doubled the amount of venture funding raised during the fourth quarter compared with the quarter before. The Miami metropolitan area saw the sharpest increase, notching $1.9 billion for the year thanks to startups including Reef Technology Inc. and ShipMonk, while the San Diego metro marked its biggest year on record with $5.3 billion raised.

Fintech, artificial intelligence, digital health and medical devices dominated deal activity, while the once-hot auto-tech sector declined both in the number of deals and total raised.

There are no signs that growth in VC funding will slow this year. A record year for initial public offerings in 2020 allowed investors to deliver returns to limited partners and raise new funds. And VCs are sitting on significant dry powder. U.S. investors raised $1.1 trillion to invest in startups last year, led by Andreessen Horowitz, which raised $11 billion.