Nobody wants to miss out on the great venture capital gravy train of the 21st century.

Earlier this year, Silicon Valley-based IVP closed on $1.8 billion for its 17th and largest flagship venture fund, with a stated strategy of placing bets on later-stage, high-growth tech darlings like Robinhood and Coinbase. That was the firm's official narrative for standing up a big new fund, but arguably this says much more about how fund allocators like pensions and endowments are flooding the VC market so overwhelmingly that venture capitalists are barely treading water trying to keep up.

Such is the magnitude of capital being thrown into the asset class by limited partners, who are racing to up their own VC bets in pursuit of ever more exposure to opportunities in the tech boom.

The latest data amassed by PitchBook paints a dramatic picture about the US venture market: Right after 2020 set new high-water marks in VC fundraising, deal flow and exits, along came 2021 (or three-quarters of it). And, boom, it already has blown away the old records—even with three more months still remaining on the calendar.
 
Venture capital's market dynamics have a circular quality in which investors back VC funds, which deploy capital to back startups, which—if all goes well—grow and are sold or go public, producing cash returns that are plowed into still more fundraising.

But the foundation of this ecosystem really starts with venture firms that go out and raise pools of capital from limited partners. And in the first nine months of this year, VCs in the US produced a record-setting haul of $96 billion across 526 funds, topping the $85.8 billion raised for 665 funds in all of 2020, according to the latest PitchBook-NVCA Venture Monitor.
 

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The fact that the industry already notched a new record despite having a smaller number of funds underscores the effect of many more mega-funds in the mix. In this year's case, firms have closed 19 different vehicles of at least $1 billion, and 27 that were at least $500 million. Indeed, the average fund size is higher than ever at about $195 million.

At this rate, the $100 billion VC fundraising mark is well within reach for the first time.

So far, the largest US fund of 2021 is Tiger Global's $6.6 billion flagship vehicle. It's worth noting that, in addition to industry mainstays, many of the top funds were raised by crossover and so-called nontraditional VC investors, such as Tiger and private equity giant TPG, which rolled out a $5.4 billion climate-focused fund in July.

In the race to secure a spot on cap tables of hot high-growth startups, the industry is setting up ever larger war chests—and more of them. This immense influx of capital has created an embarrassment of riches sloshing around Silicon Valley, driving a host of other eye-popping trends in 2021.

"Great growth for companies, bigger funds, faster growth, more exits," was the big-picture summation voiced by Hans Tung, managing partner of GGV Capital, which closed a new batch of funds earlier this year totaling $2.52 billion.

Another sign that VC funds have more than enough firepower: PitchBook data shows the industry's cumulative dry powder, or undeployed capital, is sharply higher versus last year and now stands at roughly $222 billion, a level not seen in history. Tung said GGV sees an increasing number of high-quality potential deals that it turns away only because the firm is limited; it has "only so much bandwidth" to put its capital to work.
 
Witness, for instance, the record number of deals over $100 million being inked, as VCs of all stripes and sizes hand out bigger checks in funding rounds.

Those rounds have already added up to a new record of $238.7 billion total capital raised by VC-backed companies, dwarfing the $166.4 billion high set last year.

That aggregate investment is powered by the record 597 mega-rounds this year. Topping the Q3 list were especially massive deals for companies such as electric truck startup Rivian ($2.5 billion), specialty-finance platform Generate ($2 billion) and data-management provider Databricks ($1.6 billion).
 

If mega-deals propelled the industry to an all-time record, the sector that's dominating this year's deals has been squarely in the enterprise and fintech areas. As GGV's Tung noted, overall valuation growth is driven less by consumer tech than it used to be; nowadays it's about startups that cater to business-driven tech, such as data management, remote-work applications and cybersecurity. The average deal size for enterprise tech rounds has leaped this year to $27.7 million from $16.8 million last year, according to PitchBook data.

Fintech in particular has dwarfed other verticals. A record total of $39 billion in venture capital has been invested this year in financial startups like Chime, Carta and Varo, which all raised big rounds in the third quarter. By comparison, the previous record was about $20 billion, raised last year.
 
The face of venture investing has changed forever. Gone are the days when dealmaking was the sole province of traditional VC firms based on Silicon Valley's famed Sand Hill Road.

More often than not in today's market, funding rounds involve asset managers, hedge funds, corporate venture and other so-called nontraditional investors invading the VC market. And companies raising those funding rounds are increasingly commanding much higher valuations, at least in part because nontraditional investors are typically less price-sensitive than their peers in the VC mainstream.

Look for more of the era of high price multiples to continue as nontraditional investors bulk up. Often tagged as venture market "tourists," this group together is sitting on $350 billion worth of investable capital, according to PitchBook estimates. Talk about firepower.
 
When tourists flock to hot vacation spots, the prices jump at the popular resorts, hotels and restaurants. The same thing is happening now as these tourist investors pile into competitive venture deals for hot startups, especially at the early stage.

Deal activity is at an all-time high. Last year's record volume of $44 billion in early-stage capital invested has already been surpassed, with more than $54 billion reached through Sept. 30. And those deal values are higher as well, as the median early-stage round size leaped to $10 million in 2021 from $7 million last year. Meanwhile, a surge in late-stage prices tells a similar story; on deals of $50 million or more, the median valuation has leaped to $800 million vs. $446 million last year.
 
A robust market for exits is keeping this party going, with the IPO arena providing much of the celebratory outcomes. As 2020 drew to a close, big-name IPOs like DoorDash and Airbnb put a cherry on top of Silicon Valley's banner year on Wall Street.

That has proven to be just a prelude to an even richer year in the first nine months of 2021. Top IPOs from the likes of Robinhood, Toast and Ginkgo Bioworks dominated the action in the third quarter. Exit value of US companies this year has risen to a record of more than $582 billion, PitchBook data shows, reflecting an increase in IPO deals that initially were rich with SPAC offerings and have since cooled off. But acquisition activity remains the biggest component of overall exits.

In a market that continues churning out hefty returns on investment, VC firms are expanding their network of limited partners as a wider range of newcomers to the asset class tries to run with the tech bulls.

"The market is getting bigger, and tech is a bigger part of life, so it's natural there should be more capital for it," said Eric Liaw, a partner with IVP. "This isn't just a US thing anymore—it's global—which I think is great."

Featured image by Retrorocket/Getty Images

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