In September we hinted that venture capital appeared to be rebounding from a historically bad second quarter and in October we were able to confirm that early-stage venture capital activity had rebounded in the third quarter to appear rather typical.
Now we are able to report that the momentum from the third quarter more than carried over into the fourth quarter. By several measures the fourth quarter of last year was the best quarter on record for early-stage startups. More than 80% of startups that changed valuations in Q4 were marked up, according to AngelList investments into 3,449 active startups.
The following figure shows the count of all of the startups we track on AngelList that changed value on a price-per-share basis in the quarter, with that value change being either positive (black) or negative (purple). Since valuation changes are typically spaced out, we consider only active startups where our investments have “seasoned” for at least six months before the start of a quarter. For the 4Q20 data this was 3,449 startups. Note that for the first time, our startup tracking took into account the performance of investments made by AngelList Rolling Funds.
Since the count of active startups that AngelList has seasoned investments into continues to rise over time, we should expect to observe a natural increase in the number of startups that get marked up or marked down each quarter. In this sense, the first three quarters of the year represent a dramatic lowering of venture activity, since the count of startups changing valuations was less than the high-water mark for activity set in 4Q19. In contrast, 4Q20 set a new high-water mark for markups and overall observed activity.
However, not only did we observe a record amount of activity in the fourth quarter — we also saw the tenor of that activity was the most positive on record.
These results reinforce one of the more surprising research results that we have found: there appears to be no correlation, either directly or at a consistent lag, between public markets and early-stage venture capital. The public markets had a historically bad first quarter, a historically good second quarter, and a very good third and fourth quarters. Early-stage venture capital had a mediocre first quarter, a historically bad second quarter, an average third quarter, and a historically good fourth quarter.
AngelList provides investors with the infrastructure they need to invest in world-changing startups. As of this writing we have $2.5B assets under management and in 2020 we participated in more than half of top-tier US early-stage venture deals. Our data and access gives us a view into early-stage venture activity that is unrivaled for its timeliness. That means we can report sooner and with more accuracy on market-wide trends within the startup ecosystem.