So, you just had a $5 billion venture capital year. Now what?
With the final numbers for Q4 finally in, we can say with certainty that DC had a record-breaking year for investment across the board. To the tune of $4.9 billion, venture capital sang in 2021, with deals growing larger as the year went on.
For some scale, note that the DMV raised just under $2 billion in all of 2020, meaning it more than doubled its dollars in a year. It’s not alone in the bump, though. Nearby Baltimore had its best (albeit much smaller) year in recent history at $768 million and Philadelphia did, too, with a casual $8 billion raised.
Just what drove the record-breaking year? And what does that mean for the new funding in 2022? We asked some local VC pros for their thoughts on why funding went wild in 2021, and whether we can expect that to keep going in 2022.
What’s next for VC in DC?
James Barlia, senior associate at local startup funder Revolution’s Rise of the Rest Seed Fund, told Technical.ly that a few different factors came into play to get such a banner year. He pointed to the growing size of early and growth-stage financing and the merging of policy and venture efforts, which both contributed to one big factor: the overall maturity of DC’s funding ecosystem.
A more mature ecosystem doesn’t necessarily mean more VC deals — Barlia noted that 2021 actually had a relatively similar number of deals to 2020 — but instead that the rounds are getting larger and more high-profile. Revolution-backed startups Cava and Class Technologies, he noted, both raised growth company-sized rounds in 2021 at $190 million and $105 million, respectively.
That means that inside and outside, venture capital is looking to back the promising DC-area startups. But Barlia noted that the reason for this growth might very well be one of the backbones of DC tech: its proximity to the federal government.
"In short, it's a great time to be an entrepreneur in this region."
“Both startups and financiers have recognized an expanding opportunity stemming from new legislation, such as the recently passed infrastructure bill,” Barlia said. “As policy creates more tailwinds (or headwinds) for early- and growth-stage companies, there is no better place to capture opportunity — or mitigate potential risk — than the epicenter of American politics.”
Tom Weithman, chief investment officer at the Virginia Innovation Partnership Corporation (formerly CIT), noted that DC’s boom follows a nationwide trend for venture capital. This, he thinks, is due largely to a sustained performance in the public market from area founders, and investors’ nationwide eagerness to jump into the venture capital game.
“Money coming in to venture exerts upward pressure on valuation — we see this most acutely at Series A and beyond although seed is not immune from this phenomenon — requiring larger capital deployment by investors to obtain and sustain meaningful positions in companies,” Weithman said. “That’s the macro trend.”
On top of the national trend, though, it’s the District’s strength as a tech scene that Weithman thinks really put the funding over the edge, especially since it’s got the goods to attract talent.
“We also consider the great wealth of technology in this region and the growing base of seasoned founders and managerial talent capable of attracting capital across the venture spectrum,” Weithman said. “In short, it’s a great time to be an entrepreneur in this region.”
What this means for 2022
For Barlia, the trend of the past year has also meant that some of the top and fastest-growing sectors have developed a stronghold in DC, including edtech, energy and logistics alongside cyber and govtech. Coupled with this, he noted that across the country, early and growth-stage investors are looking to invest outside of the Silicon Valley, NYC and Boston hotspots, and forward-looking developments like HQ2 and a smart city at National Landing make DC an appealing stop.
“Needless to say, I’m bullish on the growth of DC’s startup and venture ecosystem in 2022,” Barlia said.
As a result of all of the city’s assets and resources, Nasir Qadree, founder of DC inclusive investment firm Zeal Capital Partners, expects more high-growth companies in the coming years. He sees potential for additional interest from investors outside of the area in DC companies. And, in turn, he expects those DC companies will put their funding success back into the ecosystem.
"As these sectors become more technology-advanced, they’ll look to entrepreneurs (and the VCs who invest in them) to help them rethink their own systems, starting with those who are local."
“As these sectors become more technology-advanced, they’ll look to entrepreneurs (and the VCs who invest in them) to help them rethink their own systems, starting with those who are local,” Qadree said. “Working together, the opportunities are limitless in how the collective can solve some of the country’s biggest challenges, from ensuring education is more affordable, to pushing fairer job wages, to providing resources so that more people can remain competitive in the workforce.”
While there’s already plenty of potential heading into the new year, the experts say there are plenty of ways that area funds and founders can continue to grow and remain appealing to investors. Barlia said that Revolution will continue its work backing startups in the digital transformation, resilience, infrastructure and sustainability spaces, but it also plans to extend its reach into ecommerce, supply chain and logistics, decarbonization and Web3 efforts.
Zeal, too, hopes to expand into new territory as the new year pushes forward.
“There are new areas that we look to explore, such as the best use cases of how cryptocurrency and diversified finance can support the under- and unbanked and low-wealth consumers,” Qadree said. “As it relates to technology, we’re looking at the role it plays in postsecondary digital learning tools, affordable access and alternative pathways. We’re also excited about tech-enabled solutions that improve recruiting retention and training to meet the needs of a diverse and evolving workforce.”
With the potential for new industries, funds put back in the ecosystem and national eyes on DC, local investors are confident that the VC trend is here to stay.
“Venture has always been a cyclical business and we continue to ride an upward wave,” Weithman said. “At some point, this may be dampened by a marked shift in monetary policy, but for now, we appear to be in the ‘new normal.'”