Tech Startup Financing Hits Records as Giant Funds Participate in 42% of Funding Deals

Julija A. Image
ByJulija A.
August 05,2021

Mutual funds, hedge funds, sovereign-wealth groups, and pension funds are overtaking the tech startup investing landscape, leading to higher valuations and more leverage for business founders in 2021.

Large money-management companies took over Silicon Valley in the second quarter, dwarfing venture capitalists in a once-niche business and putting 2021 on the right path to potentially double 2020’s record in startup financing.

Non-traditional venture investors were more active in the Q2 of 2021 than ever before, participating in 42% of startup financing deals. Furthermore, those deals constituted more than three-quarters of the total capital invested. Startup funding in the United States reached the $150-billion mark in the first half of 2021, eclipsing the full-year total investment of every year before 2020.

There are a few aspects that make large asset firms more appealing to startup founders and could explain the dizzying deal-making pace we’re now witnessing. Big money-management companies have huge capital pools, move quickly, and aren’t likely to request board seats or ask to get involved in the company’s decision-making process in any other way.

It’s true that big money-managers have been allocating a small percentage of their portfolios to invest in companies that typically draw the attention of traditional venture-capital funding providers for a long time. However, many began investing directly about 10 years ago in a near-zero-interest-rate economy, hoping to make the most of excellent returns from tech companies that were remaining private longer. Throughout the last decade, traditional venture capitalists considered them tourist investors who lacked a certain skill set needed for startup investing.

Nevertheless, large asset firms stuck around. Nowadays, non-traditional VC investors such as Tiger Global Management and Fidelity Investments Inc. are among the top 10 US investors in startups by dollar amount. Additionally, according to the information provided by research firm PitchBook, the number of startup funding rounds that include zero venture-capital firms and other non-traditional venture capital investors has doubled throughout the last decade.

It’s interesting to mention that despite these changes, many startups still need to turn to alternative funding resources such as crowdfunding, particularly if they are just starting out.

About the author

Julia A. is a writer at SmallBizGenius.net. With experience in both finance and marketing industries, she enjoys staying up to date with the current economic affairs and writing opinion pieces on the state of small businesses in America. As an avid reader, she spends most of her time poring over history books, fantasy novels, and old classics. Tech, finance, and marketing are her passions, and she’s a frequent contributor at various small business blogs.

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