In March, as we all began to fully wrap our heads around the potential impact of the COVID-19 pandemic, the future of startup funding seemed clearly in jeopardy.
Many hypothesized that there would be a slowdown in funding and fewer deals made. The logistics of how firms could invest in a company and teams they’ve never met was a whole new obstacle. Further, how investors commit with confidence amid such uncertainty in the world was (and is) a major challenge.
But investors adapted and deals still happened.
However, with the end-of-quarter data in hand, we see that venture dollars invested in North American startups were down for the first half of the year compared to the first half of last year. The same was true specifically for the second quarter.
In general, funding counts for the most recent quarter will be lower as funding rounds are added after the quarter closes. Typically, the data lag is greater at the seed and early funding stages. Funding amounts are less impacted as larger funding rounds are more likely to be announced in a timely manner. (For more on this, see our Methodology section below).
According to Crunchbase data, $64 billion was invested in North American startups (companies based in Canada and the United States) in the first half of 2020. That’s down 10 percent compared to the same period in 2019, when $70 billion was invested.
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(In the above chart, the actual 1-H 2020 number may shift slightly given reporting delays. See Methodology description below for more details.)
The chaos surrounding COVID-19 in the United States really started in March, basically toward the end of the first quarter. So the reality check came in the second quarter.
The second quarter of 2020 was the first full quarter in the new COVID-19 world, and during that time $29.8 billion was invested in North American startups–18 percent less than the same period last year and 12 percent less than the previous quarter.
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The majority of VC funding raised throughout Q2 was in supergiant rounds, or those of $100 million or more. Although supergiant rounds were flat year over year, rounds below $100 million were down 31 percent year over year.
The overall dollar volume for VC funding in North America was down for the second quarter of 2020 compared to the same period last year and the number of deals was also down for companies across all stages.
Funding By Stage
A few data points to consider by funding stage:
- Seed and angel investment saw $1.1 billion across 699 deals in the second quarter of 2020, down from $1.7 billion across 1,773 deals in the second quarter of 2019. COVID19 had a huge negative impact on Q2 2020 seed and angel investments, down -54.5% based on dollars invested and down -253.6% based on the number of deals funded.
- Early-stage investment saw $11.1 billion invested across 555 deals in Q2 2020, down from $12.6 billion across 887 deals in Q2 2019. COVID19 had a very negative impact on Q2 2020 early-stage investments, down -13.5% based on dollars invested and down -159.8% based on the number of deals funded.
- Late-stage saw $15.9 billion invested in Q2 2020 across 191 deals, compared to $20.7 billion across 306 deals in Q2 2019. COVID19 had a very negative impact on Q2 2020 late-stage investments, down -30.2% based on dollars invested and down -60.2% based on the number of deals funded.
Notable large funding rounds include Waymo’s $750 million raise, Sana Biotechnology’s $700 million Series A, and Stripe’s $600 million Series G. Airbnb had the largest raise of the quarter for a VC-backed company, taking in $1 billion as the travel industry took a hit due to COVID-19. The round came from private equity firms Silver Lake and Sixth Street.
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Exits
Exits also took a hit in Q2. Acquisitions of venture-backed North American companies (that hadn’t previously gone public) were down significantly in Q2 2020–for acquisitions with disclosed amounts–compared to all of the past year. There were 177 acquisitions totaling $9.7 billion in Q2 2020, down from 278 acquisitions totaling $21.7 billion for the year-ago period.
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Among the largest M&A deals were Invitae’s acquisition of ArcherDX for $1.4 billion, Amazon’s acquisition of Zoox for $1.2 billion, and SoFi’s acquisition of Galileo Financial Technologies for $1.2 billion. Quarantine helped boost at-home fitness companies, and athleisure company Lululemon was able to nab connected fitness startup Mirror for $500 million.
In terms of companies going public, there was a lull in the IPO market–at least for tech companies. Only toward the end of Q2 did tech IPOs pick back up. ZoomInfo and Vroom had notable exits, raising $935 million and $468 million, respectively.In conclusion
COMMENTARY:
I have counseled my clients to make the necessary adjustments to their business models, operating procedures and digital marketing strategies to take into account the New Normal of COVID19. The huge spikes in COVID19 confirmed infection cases (now 3,468,435 confirmed cases as I post this) occurring throughout the US during July, and the lack of a national strategy or policies by the Trump Administration to curtail these infections, I do not have much confidence in Q3 venture capital investments or possibly even Q4.
Angels and venture capital firms will stick with late stage startups that have proven management teams and sustainable business models, and that have made the necessary adjustments to their business models and operating procedures to operate during the recent COVID19 spikes. Many states are now reversing course and closing down businesses that have a reputation as potential "super spreaders" of the COVID19 virus. This will have a negative impact on the economy and increase unemployment numbers which are at historic highs. As a consequence, seed and early stage startups will continue to suffer from a lack of sufficient funding until the US can control the spread of the COVID19 virus or find a vaccine.
Courtesy of an article dated July 13, 2020 titled, "North America Q2 Venture Report: Funding Down As Expected" appearing in Crunchbase.
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