Following a year like no other, the venture capital industry is in a period of transformation and innovation that’s been accelerated by the coronavirus pandemic. Pitchbook has a look at what’s to come. The fintech data company has released its 2021 US Venture Capital Outlook report, which forecasts trends that will shape the industry.

As PItchbook analysts formulated the outlooks for the 2021 VC market, they note “requisite platitudes about uncertainty ring truer than usual.” PItchbook says the COVID-19 pandemic is a key variable, pointing to the mixed news heading into 2021: Infection levels have reached a new high, but promising vaccines are being distributed.

“There are many variables on the table including the COVID-19 pandemic, a new administration in the US with numerous policy proposals spanning taxes, immigration, trade and an array of other issues that directly affect both VC investors and companies,” James Gelfer, senior strategist at PitchBook, said in a statement.

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But, he says, it looks like there’s a light at the end of the tunnel—even with macro uncertainty at a high.

Gelfer says Pitchbook sees a continued opportunity for innovation: It comes down to an increased access to capital “as investors, companies. and regulators have seemingly embraced the new landscape.”

PItchbook believes “the outlook is clearer for the VC industry than in many other areas,” the report says. There are two key reasons: Tech and healthcare—the two main sectors for VC—have grown more important during the pandemic and VC firms have plenty of dry powder available to invest them, as well as the nontraditional investors that are a factor. And with interest rates at historic lows and opportunity for growth rising, “institutional investors have retained their appetite for VC,” PItchbook notes. 

Per Pitchbook, here the eight predictions for 2021—and a self-assessment of its pre-pandemic predictions from 2020:

2021 Predictions

1. Biotech and pharma venture capital deal activity likely will exceed $20 billion for the second consecutive year.
   Pitchbook analysts note that dealmaking in these life science sectors could be fueled to near-record levels in 2021. That’s in part from “ever-growing capital commitments from limited partners looking to break into the biopharma space, along with the recycling of profits and liquidity from the 2020 IPO market.”
2. Established managers will increase the proportion of overall VC fundraising to above 75% for the first time since 2012. 
   Emerging managers have struggled to raise smaller funds, while established managers have found success raising outsized follow-on vehicles, Pitchbook says. Its analysts expect that discrepancy to widen further in 2021.
3. The number of SPAC IPOs will decline year over year in 2021—and fewer than 30 percent of last year’s SPACs will close an acquisition.
   The IPO count in the space nearly quadrupled with a plethora of SPAC IPOs in 2020. But for most investors, says Pitchbook, “the establishment of a SPAC program in the current environment was likely driven more by opportunism in a bull market than a measured inception of an evergreen strategy.”
4. More VC-backed exits over $1 billion will occur via direct listings rather than SPAC listings in 2021.
   Pitchbook analysts expect more companies to take advantage of the benefits of a direct listing next year—especially larger technology startups. That’s spawned by an SEC approval for NYSE direct listing that includes a primary capital raise concurrent with the first trade.
5. The proportion of late-stage VC deal value relative to IPO proceeds will continue to compress in 2021.
   “Late-stage VC investment reached a new high in 2020 and this flood of capital to the largest startups is expected to continue and set a record in 2021 given the continued expansion of nontraditional participation in VC,” Pitchbook says. Based on filings and indications from market participants—and a seemingly open IPO window—2021 looks to be a strong year for IPOs.
6. The Bay area will fall below 20 percent of the U.S. deal count for the first time. 
   Silicon Valley has continued to dominate in VC and rising yearly deal counts, but its share of total VC deal count in the U.S. has fallen nearly every year since 2006, according to Pitchbook. “The COVID-19 pandemic and subsequent exodus from San Francisco will only exacerbate this trend,” it says.
7. Nontraditionals will lead a record 1,600 early- and late-stage VC deals as venture becomes more ingrained in their investment strategy. 
   Venture capital investing is now more ingrained within nontraditional investor strategies, PItchbook says. These investors are growing more and more comfortable with these deals—and so is their propensity for leading venture rounds. In a blog post last year, Pitchbook defined nontraditional VCs and tourist investors as “essentially everyone outside of traditional VC firms (such as corporations, LPs, PE firms, sovereign wealth funds, hedge funds, investment banks, etc.).” It’s a group growing quickly, it said at the time, as more new participants become involved in venture capital.
8. Venture debt issuance will continue a string of record years, surpassing 2,600 deals and $25 billion originated for the fourth consecutive year. 
   Startups are raising more capital in private markets, and “venture debt has provided a cheaper and non-dilutive option to equity. By year-end, the venture debt total will almost assuredly surpass $20 billion for the third consecutive year and 2021 will likely mark the fourth consecutive year to surpass $20 billion in venture debt value.” Pitchbook says.

2020 Prediction Scorecard

PASS

• 2020 will mark a new annual record for US VC mega-deals.

• CVC activity will reach a new record in 2020.

• SoftBank’s second Vision Fund will not close at its target of $108.0 billion.

FAIL

• The median pre-money valuation for seed-stage companies will eclipse $8.5 million. FAIL

• The median US VC fund size will top $110 million, reaching a decade high. FAIL

SPLIT

• At least three direct listings of VC-backed companies valued at over $1 billion will close in 2020.

Go here to request a download of the full report.