The two main areas for venture capitalist (VC) investment – technology and healthcare – have grown during the COVID-19 pandemic and investors have ample dry powder to direct money at biotech and pharma firms in 2021, research firm PitchBook said on Monday.
There is mixed news heading into 2021 on the COVID-19 pandemic front, with rising infection levels and a handful of vaccines showing promise.
Added to this, a new administration in the United States and its policy proposals, taxes, immigration, trade policy, and other issues that directly affect both VC investors and companies will all be on the table next year, PitchBook said in its 2021 U.S. venture capital outlook report.
VC investment in the biopharma space is likely to surpass $20 billion in 2021, driven by the need to fund trials and build out research and development programs, as clinical trials resume and elective procedures restart.
On the other hand, the number of special purpose acquisition companies (SPACs), which raise funds through an initial public offering (IPO) to acquire another company within two years, is expected to dwindle in 2021 compared to 2020, PitchBook said.
A total of 162 SPACs listed so far this year have raised $55 billion, an increase of 501.8% on capital raised and 295.1% in count from 2019.
“Just eight months into this new SPAC phenomenon, we’ve already seen signs of oversaturation in the market, with a recent uptick in the number of downsized SPAC IPOs,” PitchBook analysts said.
Over the next 12 months, the analysts expect to see more signs of overcrowding in the SPAC market, including a year on year decline in SPAC IPO volume.
PitchBook said more companies, especially large-sized technology startups, are expected to take the direct listing route to go public instead of an IPO in 2021.