VC investment in the US stayed robust in Q4’20, helping drive total annual VC investment to a new record high of $156.2 billion in 2020, compared to $138 billion last year. While the US faced a number of uncertainties during the quarter, including the presidential election in November, a seemingly endless supply of cash on the sidelines and an ample exit market helped to keep confidence in the VC market relatively robust through the end of the year.

During Q4’20, VC investment in the US remained focused on key sectors relevant in the current pandemic environment, including fintech, health and biotech, and transportation. These sectors accounted for many of the quarter’s largest funding rounds, including Resilience ($725 million), Robinhood ($668 million), Chime ($533 million), Nuro ($500 million), Tempus Labs ($450 million), and Hippo Insurance ($350 million).

Venture financing United States, Q4'20

COVID-19 driving disruption across US healthcare sector

The health and biotech sector continued to be a hot priority for US-based VC and corporate investors in Q4’20, with interest stretching well beyond COVID-19 specific activities. Over the last few quarters, the pandemic highlighted significant gaps in the healthcare ecosystem in the US ripe for disruption, which has led to an uptick in investor interest in a wide-range of health and biotech areas, including remote diagnostics, medical imaging solutions, fitness, and wellness. The wellness industry in particular saw significant growth throughout 2020 as consumers became more concerned about their health – a trend expected to continue well into 2021.

IPO activity in the US continues to surge

Following a strong quarter in Q3’20, IPO activity in the US continued to surge in Q4’20, despite the uncertainty related to the US presidential election. December saw a number of highly successful unicorn IPOs, including vacation rental marketplace Airbnb, delivery company DoorDash, and AI-driven enterprise SaaS company Airbnb raised $3.5 billion in its IPO, with shares rising 112% on the first day of trading, propelling the company’s valuation over $100 billion7. DoorDash raised $3.3 billion, with shares climbing 85% on the first day, giving it a market cap of $44 billion8., meanwhile, raised $651 million, with shares spiking over 170% on the first day of trading, giving it a market cap of $10 billion9.

Trends to watch for in the US

VC investment in the US is expected to remain strong heading into Q1’21, in addition to M&A and traditional IPO activity. The use of SPACs for IPOs is also expected to continue into Q1’21, although the time horizon of SPACs – which (typically) require target companies to be acquired within a two-year period – could lead to some suboptimal choices over time given the number of SPACs currently in the market looking for targets.

Investment in the fintech, delivery and logistics, automotive, and health and biotech sectors is expected to remain strong well into 2021, while investments related to cybersecurity are expected to heat up given the expectation that digital channels and offerings will remain important to consumers in a post-pandemic world.

The change in administration in the US will also be critical to watch heading into 2021 as it will likely drive a shift in key government priorities and policies over time, which could affect key sectors of VC investment. One area well positioned to see an increase in activity is cleantech – such as cloud-based software solutions and energy storage and battery technologies.

Quote by Conor Moore
Venture pulse Q4 2020 - US infographic