“Many innovators and entrepreneurs are now focused on the abundant opportunities to develop technologies and build companies that address the needs of a reopening economy and a structurally different post-COVID environment,” the report said.
Also encouraging VC spending: the boom in companies going public, both via traditional initial public offerings and by merging with so-called blank check companies, also known as special purpose acquisition companies. So far this year, 218 companies have gone public the traditional way and raised $80 billion, making it the busiest since 2000, according to data from Renaissance Capital. Another 34 startups have gone public in the first half of 2021 via SPAC mergers, PitchBook-NVCA said.
Among Boston firms, indoor farming company Agrify completed an IPO in January, and payments startup Flywire went public in May.
Meanwhile, mergers and acquisitions, such as Microsoft’s $20 billion purchase of Nuance Communications, have proceeded at typical rates seen in recent years.
With attractive areas for startups to attack and lucrative opportunities to go public or be acquired, it’s no surprise that venture capital investment is booming, according to Thomas Chemmanur, a finance professor at Boston College’s Carroll School of Management. Chemmanur highlighted green tech, biotech, and software, including cybersecurity, as particularly attractive to VCs this year.
But the trend could come to a halt quickly, he warned. “I suspect VC investment will cool down if the IPO market cools down — there is a strong connection between the two,” he said.
For venture capital investment, Massachusetts ranked third in the country, behind California, where startups raised $72.5 billion in the first half of the year, and New York, where startups brought in $20.9 billion. Elsewhere in New England, Connecticut ranked 14th in the nation, with $1.4 billion raised.
Nationwide, startups raised $150 billion in the first half of 2021, almost matching the $164 billion raised for all of last year, PitchBook and the National Venture Capital Association reported. That included $24 billion raised by financial technology firms, the most ever in one year for that sector, breaking last year’s record of $21 billion. Among fintech startups, Boston-based Circle raised $440 million in May.
Massachusetts investors favored startups in some of the region’s classic industries, like health care and software, said Greg Dracon, a partner at the VC firm .406 Ventures in Boston. Cybersecurity is also growing strongly, with hundreds of companies, he said.
“It’s a phenomenal place to build a cyber company,” Dracon said. “Once you get a flywheel like this spinning, the momentum is hard to stop and I think we’re seeing a similar situation in healthcare and infrastructure. That’s the sustainable piece and great for the region.” (Dracon’s firm invested in local cybersecurity companies ThreatX and Tausight this year.)
As more companies go public or get acquired, venture capital funds can sell their stakes, raising profits they return to their investors. That in turn helps the VC firms raise new funds to pump back into startups. And those funds are getting quite large: In June, TA Associates in Boston announced its latest fund raised $12.5 billion, compared to the $8.5 billion it raised for its prior fund in 2019.
Deal activity by female-founded companies also looks likely to set records in 2021. In Massachusetts, health sensor developer FIGUR8, founded by Nan-Wei Gong, raised $12 million, and wig maker Waeve, founded by three Black women, Mary Imevbore, Susana Hawken, and Tiiso McGinty, got $2 million in seed funding.
Nationwide, startups with at least one woman founder raised $23.2 billion in the first half of 2021, just surpassing the $23 billion raised in all of last year, Pitchbook-NVCA said.
Venture capital fund-raising in recent years dwarfed the amounts raised during the Internet bubble, giving many analysts pause that the market could be entering a risky phase. In 1999, for example, venture capital fund-raising totaled $35.6 billion nationwide, including $4.1 billion for New England companies, according to PricewaterhouseCoopers. Even adjusted for inflation, the 1999 total was worth only about $57 billion.
The flood of money could end badly for some investors, warned Barry Unger, a professor emeritus at Boston University who has followed the local tech scene for decades. “Funds have so much money needing to be spent,” Unger said. “I’m starting to see some overpriced deals.”