Q2’20 saw regions across the globe continuing to grapple with the challenges associated with the novel coronavirus COVID-19 — including economic turbulence, sudden spikes in unemployment rates, restrictions on travel and movement, and the ramifications of the continued shutdown or slowdown of many sectors and industries. As countries began to re-open their economies during Q2’20, both VC investors and startups worked to understand the ‘new normal’ and how it would affect business operations.
Venture Capital (VC) investment continued to show some resilience compared to broader economic trends, particularly in the US and Europe. In the US, autonomous driving company Waymo raised a massive $3 billion in the largest VC deal of the quarter. Fintech investment was particularly hot in the US during Q2’20, with Stripe, Samsara, and Robinhood all raising large deals. In Europe, sectors seen as high potential despite or because of COVID-19 attracted significant investors’ attention, including transportation and logistics, health and biotech, and fintech. VC investment in Asia remained relatively soft in Q2’20, despite a $1 billion raise by China-based Didi Bike.
Many companies have been hit hard by the resonating impacts of COVID-19 on the business environment. While companies that conducted funding rounds in late 2019 and early 2020 might have the liquidity to manage the lengthy market uncertainty, others are beginning to run out of cash. Companies looking for funding will likely have to compromise on valuations. There will likely also be some pressure for consolidation, particularly in sectors with numerous competitors. The pandemic could hasten consolidation as the better capitalized competitors take market share and others fall by the wayside.
Globally, many VC investors spent Q2’20 focusing on the companies within their own portfolios. Before making new investments, VC investors are making sure they have the ability to support their existing companies. This is particularly true for VC investors that expected a mature portfolio company to go public in 2020. With a US presidential election in the fall, many companies are delaying IPO plans into 2021; VC investors recognize that they delay might mean the need for additional funding to bridge the gap.
As VC investors continue to be cautions, the global VC market has continued to see declines in early-stage VC deals. While the trend toward late stag deals began long before COVID-19 began to make waves, the pandemic is making it even more difficult for early-stage companies to attract funding.
There is still a significant amount of uncertainty around the world heading into Q3’20. While VC investment may have been buffered somewhat in Q1’20 and Q2’20 by the long lead time for deals, Q3’20 will likely show whether VC investment is really able to withstand the full brunt of the pandemic’s impact given the long period of travel restrictions and other challenges. While some countries are opening up their economies, there is still likely to be challenges with international travel and deal-making for some time. This is causing many VC investors to focus more on opportunities in their local markets — which could have a negative impact on VC investment in countries that rely significantly on international investment.
Over the past few months, people and businesses around the world have been forced to embrace digital solutions — for remote working, shopping, banking, health care, food delivery, and more. This is accelerating the pace of digital change in may regions in a dramatic fashion — a trend that will have a long-term impact on consumer and business behaviours. This will likely help drive VC investment, particularly on the part of corporates that may have lagged behind on the innovation front and now recognize the very real imperative to change.