The Covid-19 pandemic has rattled many sectors of the economy, but the changes in the U.S. venture capital industry have been among the most drastic.
VCs set an investment record in 2020 and the industry shattered it again in 2021, nearly doubling investment totals from the year prior. In Arizona, dealmaking also hit an all-time high, according to the new Venture Monitor report from PitchBook and the National Venture Capital Association.
Forty-five Arizona companies pulled in a combined $886.97 million in the fourth quarter of 2021, which was the biggest quarterly haul in the past year. For the full year, Arizona saw 161 VC deals worth a combined $1.89 billion, a new record according to the Pitchbook-NVCA data.
Note: PitchBook and the National Venture Capital Association track these figures on an ongoing basis by updating certain transaction details when they find them. As a result, some figures shift between quarterly reports.
The investment data charts the rise of Arizona’s startup ecosystem over the years, from a smaller collection a decade ago to a more complete industry in 2021.
While startups are undoubtedly on the rise in Arizona, it’s important to note the role that mega-deals (those worth $100 million or more) were a big reason for the 2021 investment record.
Paradox and Nextiva each raised $200 million in outside funding this year, Emerge raised $130 million while Persefoni and Lessen brought in $110 million and $205 million, respectively, in multiple rounds; These five companies alone make up nearly 45% of all the funding raised during the course of the year.
A clutch of Arizona companies raised significant money last year — including at least 20 that raised $20 million or more — but building a robust entrepreneurial ecosystem requires investment at all stages of company development, including early-stage seed funding.
Arizona still lags neighbors
At the national level, VCs cut more than 17,000 deals in 2021 worth more than $329.9 billion, nearly double the then-record of $166.4 billion poured into startups last year.
“By all metrics, 2021 was a banner year for the U.S. VC ecosystem,” John Gabbert, founder and CEO of PitchBook, said in a statement. “A fair portion of the new investment records can be attributed to the record levels of capital washing through the system…With VC returns outpacing every other private capital asset class, we expect LPs to continue to allocate capital toward venture at unprecedented rates in the coming year.”
The rising VC tide has lifted many boats, but some places are still dominating; The vast majority of the nation’s VC dollars (more than 70%) went to California, New York and Massachusetts alone last year.
Going off the funding measure alone, Arizona's startup ecosystem trails regional neighbors Utah and Colorado, both of which have smaller populations.
