Q3 2021 Venture Financing Report – Deal Volumes Moderate as Terms Continue to Favor Companies

The third quarter of 2021 continued to support a strong financing environment, as we have witnessed throughout the year. In Q3, Cooley handled 339 disclosable deals representing more than $18.1 billion of invested capital. While slightly lower than recent prior quarters, this is still robust compared to historical trends. Median pre-money valuations remained strong during the quarter, and we saw significant valuation increases in Series A and B rounds. Of note, 47% of transactions had a median pre-money valuation greater than $100 million. Similarly, the percentage of transactions that were up rounds reached another notable level, as 97% of transactions during the quarter were up rounds.

Deal terms in Q3 continued a company-friendly trend, as we have seen throughout the year. For example, only about 3% of transactions involved the sale of fully participating preferred stock, the percentage of transactions that included a recapitalization declined, and a smaller percentage of our life sciences deals included tranching. Q3 did show a slight uptick in the utilization of pay-to-play provisions – but even with that increase, only approximately 3% of our disclosable deals incorporated those structures.

Spotlight on life sciences

After a surge in deal volumes in Q2, Cooley handled 61 disclosable life sciences-focused deals in Q3 2021, representing more than $3.5 billion of invested capital. Though deal volume was down relative to Q3 2020, the dollars raised represented a 25% increase relative to the same quarter of 2020. Of note, the percentage of life sciences deals structured in tranches decreased to just over 8% of transactions in Q3. This represented a marked decrease from prior quarters, which may be a sign of investor optimism in the sector. To view more details on life sciences trends, use the “Life sciences” filter in our interactive data visualization tool.

Spotlight on technology

In a continuation of robust trends seen throughout the year, Cooley handled 195 disclosable technology sector deals in Q3 2021, representing more than $9.9 billion of invested capital. Deal volume was more than 19% higher relative to Q3 2020. Aggregate dollars raised in Q3 2021 increased 77% relative to Q3 2020. To view more details on technology deal trends, use the “Technology” filter in our interactive data visualization tool.

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Key insights from Merritt Hummer of Bain Capital Ventures

On valuations and later-stage investments: “As a growth investor, I believe the valuation environment puts a bigger onus on us to make the right calls on investments. … We have to make sure we are picking winners who will grow into and beyond their valuations.”

On the Bain Capital Ventures platform: “Everyone on the Bain Capital Ventures team is laser-focused on one or two sectors. … Because we spend a lot of time in our areas, we like to think we can disproportionately support and contribute to the success of our portfolio companies.”

On embedded marketplaces: “We believe that the future of vertical SaaS will be defined by embedded financial services and embedded marketplaces. … We are seeing embedded marketplaces pop up everywhere – in software for construction, spas and salons, restaurants, financial institutions … the list goes on.”

Read the full commentary from Merritt Hummer


GO Visualize (powered by Tableau)

Welcome to Cooley GO Visualize, which allows you to drill down on trends gleaned from deals we’ve worked on with entrepreneurs. The data you see here will be updated in conjunction with our quarterly VC Financing Reports. We hope you’ll find this and other Cooley GO resources such as the Convertible Note Term Sheet Generator and our guidance in Raise helpful in navigating and accelerating your fundraising efforts.

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