VC investment in the Americas got off to a solid start in Q1’20, primarily driven by strong VC investment in the US. While VC investment in the US increased quarter-over-quarter, both the number of deals and total VC investment in countries outside of the US – including Canada, Brazil, and Mexico – fell sharply. Growing concern around COVID-19 began to cast a shadow over VC deals in the Americas during Q1’20 and is expected to significantly impact both the number of deals and the amount of VC investment in the Americas in Q2’20.
The lackluster performance of a number of unicorn IPOs in 2019, has resulted in VC investors in the Americas – particularly in the US and Canada – enhancing their focus on profitability. They no longer have interest in investing in companies that burn cash, instead scrutinizing plans as to how and when companies expect to become cash flow positive when making investment decisions.
In the wake of COVID-19, VC investors both in the US and across the Americas will likely increase their focus even further on companies that are efficient, profitable, or that have a very strong value proposition given the highly uncertain economic situation and the length of time it could take for economies to rebound.
There are few expectations with respect to Q2’20 in terms of VC investment given the current COVID-19 situation. While deals will continue to occur, most will take a significant amount of time. VC investors will likely focus on companies within their existing portfolios or on those that are well positioned to solve problems created by COVID-19, such as biotech, healthtech, edtech, food delivery, and logistics companies.
It will likely be an investors’ market over the next quarter or two; as companies run out of cash and look to raise funding, investors will likely be able to make investments based on lower valuations than they would have in January.