Tech Startup Financing Hits Records as Giant Funds Dwarf Venture Capitalists

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Big money-management firms expanded their dominance in Silicon Valley last quarter, crowding out venture capitalists in a once-niche business and putting 2021 on pace to nearly double last year’s record in startup financing.

Hedge funds, mutual funds, pensions, sovereign-wealth groups and other so-called nontraditional venture investors were more active in the second quarter than in any previous period, according to research firm PitchBook Data Inc. These firms participated in 42% of startup financing deals, and those deals accounted for more than three-quarters of the invested capital, according to Pitchbook.

Investment in U.S. startups for the first half of 2021 hit $150 billion, eclipsing full-year funding every year before 2020, according to a report from PitchBook.

The large asset firms have massive pools of capital, move quickly and are less likely to ask for board seats or involvement in company decisions, often making them more appealing to founders, according to interviews with investors and startup executives. The result has been a dizzying pace of deal making.

“It’s like speed dating but more extreme,” said Peter Fishman, a longtime Silicon Valley tech professional who last year co-founded data-automation startup Mozart Data Inc.

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