A $100 million funding round isn’t what it used to be.
Nine-figure rounds have become more common in the Seattle area this year, with companies like Outreach, Rec Room, Flyhomes and others all raising at least $100 million. Experts see the ballooning rounds as a result of many factors, including the movement of private equity funds and hedge funds into venture capital.
“(Companies) are growing much larger in the private markets than they have,” said Kyle Stanford, senior analyst at the Seattle-based financial data firm PitchBook Data. “We’ve seen a lot of public market investors cross over into venture to capture some of the gains they would lose if they waited for companies to IPO. They’re coming with much bigger checkbooks and capital bases.”
In addition to huge amounts of capital and a heightened interest in startups with eye-catching values, Stanford said hedge funds and mutual funds are also finding fewer public companies to invest in, and investors want access to the private markets.
Even $100 million rounds have been dwarfed by some of the funding rounds in Seattle this year. Seattle-based Outreach, for example, raised $200 million in June and reached a value of over $4.4 billion. Seattle-based Highspot raised $200 million in February and reached a value of $2.3 billion.
According to Stanford, there’s still a large gap between top-tier startup and venture capital ecosystems, like the Bay Area and New York City, and the rest of the U.S. Still, he added, Seattle has done a good job rising to the top of the second tier, where metros like Denver and Austin, Texas, reside.
Heather Redman, co-founder and managing partner of the venture capital firm Flying Fish Partners, said investors across the spectrum are trying to get involved earlier to avoid getting boxed out from growing startups. The traditional fear about getting into venture capital, namely being exposed to tech, is disappearing, Redman added.
“(Tech) has become such a driver for the economy that it’s no longer this little niche,” Redman said. “That’s the real engine of the economy. How do I get access to that? I have to go earlier, and I have to go into venture.”
The explosion of big deals isn’t limited to Seattle. There were 385 deals of at least $100 million in the U.S. this year as of June 30, according to a joint report from PitchBook and the National Venture Capital Association. Those 385 deals totaled $85.5 billion. In all of 2020, which had been a record year for these “megadeals,” there were only 329 such deals totaling $75.2 billion.
Stanford and Redman both see the trend of major deals continuing in the near future. Stanford points out firms have record amounts of “dry powder” to invest. For example, there are rumors that prolific investor Tiger Global Management, which made 1.3 deals per business day in the second quarter, is raising a $10 billion fund.
For Flying Fish, which focuses on early stage companies, the trend of investors all moving upstream will mean more competition. It also alleviates a major anxiety for early stage investors and their portfolio companies: the availability of capital at the later stage.
“We always want to be able to look out there and say, ‘If you guys are doing a good job, there will be lots more money for you.’ Right now, we can say that with a great deal of confidence,” Redman said.
