Venture capitalists may be getting too comfortable with marking up their own portfolios.
The number of inside rounds, or VC deals in which only a startup’s previous investors participate, reached a high of over 1,000 in the U.S. last year and could top that record by the end of 2021, according to data provided to The Information by research firm PitchBook. In total, VC firms invested a record $30 billion in inside rounds in 2020, up 15% from 2019.
Some of the rise likely stemmed from emergency financing of portfolio companies at the start of the pandemic. But it also reflects the boom in tech investments as VC funds, afloat in record levels of capital, doubled down on their favorite companies.
This rise in prices has started to change the stereotype of inside rounds. Historically associated with investor bailouts of companies, inside rounds have started to indicate fierce investor competition for a sought-after startup. At the same time, their prevalence adds to worries that plentiful VC funding is inflating startup valuations.