At this point, it’s almost trite to say this year has been unlike nearly any other. And though uncertainty remains, the pandemic’s effects have kicked off trends in the VC ecosystem that will continue long into 2021.
Looking at overall trends from the past year in the industry, data and research firm PitchBook has released its report on the primary trends that will shape the VC ecosystem next year. And some of those trends could help position the region and the startups located here to take off.
“The VC industry itself is undergoing a period of transformation and innovation. As the traditional VC model—with heavy concentration in particular demographics and geographies has been questioned in recent years, we have seen a concerted effort to look beyond traditional VC hubs and develop new ways to capitalize startups,” the report states.
Unsurprisingly, PitchBook’s first prediction is that the increase in biotech and pharma investing activity will continue, and will likely exceed $20 billion. As of mid-November, startups in those industries nationwide raised $23.3 billion in VC dollars across 865 deals, with IPOS in the market raising $9.7 billion. PitchBook said those numbers have begun to draw nontraditional investors to biotech and pharma startups, continuing the industry’s growth. In addition, as many drug development companies look to restart R&D efforts, they will be looking for more VC funding, PitchBook said.
2020 has seen Fort Worth- and Paris-based Eyevensys raise $30 million in a Series B, health care AI startup Perimeter Medical Imaging moved its HQ to North Texas following a $7.4 million grant from CPRIT, and Dallas-based cancer biotech startup Lantern Pharma net about $26 million in an IPO.
This year has also seen some massive rounds, including a $95 million Series B for Dallas-based central nervous system-focused biotech startup Taysha Gene Therapies led by Fidelity Management & Research company, which also raised $180M in an IPO this year.
“The pandemic will undoubtedly leave lasting wounds on many industries. However, we see biotech & pharma as a defensive industry and one of the first to bounce back,” the report states. “Ultimately, many tailwinds are supporting the biotech & pharma industry for the foreseeable future and we anticipate 2021 will post another robust year for dealmaking.”
The IPO scene was also part of PitchBook’s 2021 predictions, especially surrounding the recent trend of SPAC activity. The firm expects SPAC IPOs to decline next year, with fewer than 30 percent of SPACs launched this year closing an acquisition in 2021. PitchBook said that while SPAC activity has increased more than 501 percent in terms of capital raised, that trend will likely slow as it was spurred more by opportunism created by the pandemic.
While there has not been as much increased SPAC activity locally, firms with North Texas ties like TPG have launched their own tech-focused SPACs. The region has also seen some recent nontraditional public listing routes, like Mavenir’s direct listing on the Nasdaq in October.
Another trend with the potential to boost DFW’s standing as a startup hub PitchBook predicts is that Bay Area and other large hub areas will decline in deal counts. That trend is largely driven by the exodus of startup and VC players leaving that area. And Texas seems to be high on the list of places for relocations.
A number of large players in the VC and tech industry have recently announced moves to North Texas and other parts of the Lone Star State. VC firm Gore Range Capital recently announced plans to open a second office in Southlake, where companies like Microsoft and Robinhood have also scooped up office space.
In November, the Dallas area took the No. 2 spot on CompTIA’s 2020 Tech Town Index, jumping from No. 7 the previous year.
“The pandemic has thrust the VC ecosystem into new territory where Zoom meetings and alternative deal sourcing methods reign supreme. This shift has, at least somewhat, leveled the playing field for investor attention,” the report stated. “Investors are no longer driving around the city to take meetings. Over Zoom, it doesn’t matter if the company is in the same building, city, state or country. This alone will help some dollars and deals move outside the Bay Area, at least during the rest of 2020.”
PitchBook also makes a number of other predictions about the VC industry, including that established managers will increase their portion of overall fundraising, more VC-backed exits over $1 billion will increase, nontraditional investments will increase, and venture debt will continue to rise.
PitchBook made a number of predictions last year as well. Below is the prediction, along with how PitchBook rated that prediction now.
- The median pre-money valuation for seed-stage companies will eclipse $8.5 million – Fail
- 2020 will mark a new annual record for U.S. VC mega-deals – Pass
- CVC activity will reach a new record in 2020 – Pass
- The median U.S. VC fund will top $110 million, reaching a decade high – Fail
- SoftBank’s second Vision Fund will not close at its target of $108 billion – Pass
- At least three direct listings of VC-backed companies valued over $1 billion will close in 2020 – Split
“We see continued opportunity for innovation as investors, companies, and regulators have seemingly embraced the cause of increasing access to capital for startups,” the report states.
