To economies, public markets, and VC markets around the world, the rise of the novel coronavirus COVID-19 in Q1’20 was unexpected and sudden, its impact massive and widespread. Despite a solid start in the VC market in Q1’20 due to a strong pipeline of deals in most jurisdictions, the outlook for Q2’20 is much less promising.
The Nordics venture ecosystem turned in some intriguing results for 2019 with the trend held steady into the first quarter of 2020. Dry powder in the market, a number of new funds, high CVC activity and numerous $10 million+ deals contributed to the positive investment environment – at least until COVID-19 reared its head in March. It remains to be seen whether and on what terms such rounds can still close even given an environment increasingly rife with uncertainty.
COVID-19 is expected to have a significant negative impact on VC investment in Q2’20 in the Nordics. A number of VC-backed companies are at the scaling phase and could find their efforts curtailed as a result of the pandemic.
— Most startups in the Nordics will be somehow affected by COVID-19. Companies at the scaling phase might be severely limited in terms of their ability to do so with many borders closed, people not spending as much, corporations being busy with their own crisis management and weakened ability to conduct face-to-face sales. Attracting later-stage funding for growth could also be difficult at least over the next quarter or two with international investment and CVC activity expected to slow down and VC investors potentially needing to prioritize bridge rounds for companies already in their portfolio, says Jussi Paski, Head of Startup Services, KPMG Finland.
VC investment in Europe got off also to an excellent start in 2020 even with the exit of the UK from the European Union and the sudden uncertainty created by the rapid spread of COVID-19 in February and March. The expanding startup ecosystem across Europe, low interest rates, and a strong base of maturing startups helped drive the continued VC investment.
The UK continued to see strong VC investment in Q1’20 despite its official exit from the EU on January 31, 2020, however, it did start to see some collateral damage from Brexit. Fintech and biotech companies that are only regulated in the UK will need to consider their regulatory requirements if they need regulatory approval elsewhere in order to continue with their operations. Despite the breadth of VC investment in Germany in Q1’20, COVID-19 is expected to have a substantial impact on both VC and corporate VC investment. On the positive side, COVID-19 is driving collaboration and innovation in the health and biotech sectors.
Altogether the Europe’s VC market will likely face a tough Q2’20, although digital services, edtech, health and biotech companies, and certain B2B and B2C companies could remain attractive even during the crisis given their applicability and long-term relevance. While the short-term economic outlook is highly uncertain, the pandemic could lead to an increasing acceptance for digital solutions.
Despite some global political and economic uncertainty 2020 started off on a mostly positive note in both the Americas and Europe. VC investment in Asia, however, fell significantly driven primarily by a slowdown in China, the first to be affected by COVID-19.
While traditional VC investment is expected to slow significantly over the next quarter, there are several niche segments of the market that could remain attractive to investors due to their applicability in the current environment. Health and biotech, for example, including companies focused on digital health, pharmaceuticals and life sciences, AI modeling to predict the spread of diseases, medtech and other related areas. Companies focused on productivity solutions, logistics and delivery, edtech, and online entertainment could also see some investment, along with cyber security and data protection companies given the significant increase in online services.
This crisis-driven action and forced innovation will have resonating impacts long after COVID-19 finally abates. Companies will have realized the value of digital on an almost unheard-of scale. Consumers will have seen the value of e-commerce, edtech, digital entertainment and gaming, digital learning, and all manner of other digital services. This shift could forever accelerate retail and many other industries further along the digital continuum. Those who do not move may very well not survive.
Head of Startup Services
p. +358 40 1484 202