Despite the turmoil of an ongoing pandemic, global venture funding for the second quarter of 2020 was not as dire as we expected, but it was down from previous years.
Overall, total global venture dollars for 2020 track at $129 billion for the first half of the year. This includes all funding stages, from seed, venture, corporate venture and private equity rounds in venture-backed companies.
That $129 billion is down from the peak in 2018, and down 7 percent from the first half of 2019.
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Market predictions
In our first-quarter venture funding report we reported on varying trends across regions with China demonstrating the largest decrease quarter over quarter and year over year. The pandemic hit China earlier than most other parts of the world. We predicted the reckoning would come in the second quarter with founders negotiating funding in a changed market.
Toward the end of the first quarter and into the second quarter of 2020, the pandemic’s impact was felt across large sections of the globe, resulting in high counts of layoffs by technology startups, shifts to remote work seemingly overnight, and markets shutting down. Industries hit hard were travel, last-mile mobility, restaurants, events and more.
In NFX’s most recent VC and founder sentiment survey, 60 percent of VCs report that early-stage valuations have dropped by 20 percent to 30 percent. Of the founders surveyed, 30 percent experienced a reduction in revenue. But this is not the full picture, as 23.5 percent of founders reported an increase in revenue.
Despite the turmoil and revised funding plans for many startups, funding held up. We saw increased funding to biotech specifically, and decreased funding to transportation, and real estate.
Diving Into The Second Quarter
Of that $129 billion, Crunchbase recorded $69.5 billion invested across all funding stages for the second quarter specifically. This is up 17 percent quarter over quarter and down 2 percent year over year with one notable caveat–a sizable raise by one company that somewhat skews the data.
For this quarter, 138 funding rounds were raised at above $100 million, which represents 61 percent of all funding raised at $42.1 billion. Rounds below $100 million at $27.3 is the lowest amount recorded since early 2017.
The largest funding to a single company went to Reliance Jio, the largest mobile network operator in India. Reliance Jio has amassed a user base of 400 million in a short time, and has raised multiple billion-dollar rounds this quarter. Led first by Facebook at $5.7 billion, the company raised another $9 billion from a range of growth investors and sovereign wealth funds from the U.S. and Asia in the second quarter.
Previous rounds above $10 billion were raised by Ant Financial with a $14 billion Series C in the second quarter of 2018, and JUUL, which raised $12.8 billion in the last quarter of 2018.
Should you remove Reliance Jio from the second quarter–given the voluminous amount of funding to one company–the numbers would look vastly different. Funding would be down by 9 percent quarter over quarter and 23 percent year over year.
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For Q2 2020, we are reporting on actual funding vs. projected funding. With the trend toward larger rounds reported in a timely manner, along with the growth in super giant rounds, projecting funding round amounts make less sense. A year out we see an increase per quarter– below 10 percent–for funding amounts.
For funding counts we notice a strong data lag, especially at the early and seed stages, by as much as 26 percent to 41 percent a year out.
Funding By Stage
It is interesting to examine how each stage holds up through the pandemic.
Based on reported fundings, over $2 billion was invested at the seed stage this quarter. Seed funding data lags the most, as smaller seed fundings are added by founders after the quarter in which they were raised.
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Early-stage fundings came in at $19.6 billion for the quarter, up 3 percent quarter over quarter and down year over year by 21 percent. Counts for the two most recent quarters will go up over time.
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Late-stage investments totaled $35.7 billion, flat quarter over quarter and down year over year by 9 percent.
Some 80 unicorn companies raised funding rounds this quarter. Funding rounds above $500 million went to Airbnb, Zuoyebang, Sana Biotechnology, Stripe, Palantir Technologies and Tokopedia. Google subsidiary Waymo, and Didi Chuxing subsidiary Qingju also raised large rounds.
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With the $9 billion in private equity rounds to Reliance Jio, technology growth tracks in at $12 billion this quarter.
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Leading M&A
Global M&A for venture-backed companies tracked at $14.8 billion, less than half of Q1 2020. (It is worth noting that the majority of reported acquisitions do not include a price.) For this chart we also exclude acquired technology companies that have previously gone public.
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The largest acquisition this quarter was that of Istanbul-based Peak Games, a developer of mobile games, which was acquired by Zynga for $1.8 billion. Also this quarter, Amazon acquired California-based Zoox, a developer of autonomous vehicles for $1.2 billion, and in-home fitness provider Mirror, based out of New York, was acquired by Lululemon for $500 million. Also from New York, Giphy, the social image and search company was acquired by Facebook for $400 million.
The first quarter of 2020 was strong for M&A with the acquisitions of Infor, Credit Karma and Plaid and topping $35.8 billion in deal volume.
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Notable IPOs
The majority of IPOs were clustered in June 2020 as the markets recovered from the initial impact of the pandemic. For venture-backed IPOs, ZoomInfo raised the largest amount at $935 million, and Vaxcyte, developer of a vaccine for COVID-19 raised close to $250 million. Electric truck maker, Nikola Motor Co., went public via a reverse merger, which valued the company at $12 billion.
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COMMENTARY:
In my earlier post for North America Q2 2020 Venture Capital Investments Down, Angel and Seed Take Huge Hit, I pointed out how the COVID19 Global Pandemic had negatively impacted venture capital investments among all startup stages in North America,
The recent spike in COVID19 infections will likely continue to negatively impact venture capital investments among seed and angel investments and early stage investments. Venture capital firms will most likely continue to fund late-stage startups because of their experienced management teams, proven sustainable business models and changes in operating procedures during this pandemic.
There has been a reset in venture this year as we come out of two strong years in funding to technology startups peaking in 2018.
However the reset is not as dramatic as we might have expected.
In the past month, the IPO market seems to be opening up with a number of tech companies filing to go public namely nCino, Snowflake, Palantir Technologies, Jamf and Amwell Health. Lemonade and Accolade both went public on July 2 as the third quarter kicked off.
However the second quarter of 2020 will be remembered for the police killing of George Floyd, the protests across the world angered by the brutal treatment of Black Americans, and the need for America to account for itself when it comes to systemic racism.
Courtesy of an article dated July 3, 2020 appearing in Crunchbase titled, "Q2 2020 Global Venture Report: Funding Through Pandemic"
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