VC investment in the US rose in Q1’20, led by a $2.25 billion raise by autonomous mobility company Waymo and a $1 billion raise by cleantech infrastructure provider Generate Capital. The relatively long lead times for deals helped keep the VC market on an even keel even as the coronavirus COVID-19 began to make waves in the US economy and public markets.
The first two months of 2020 saw a continuation of the trends experienced in Q4’19. VC investors in the US continued to have a significant amount of dry powder at their fingertips. Despite the failed WeWork IPO and the weak performance of a number of IPOs during 2019, there continued to be a competitive market for high quality VC deals. VC investors enhanced their focus on profitability, putting pressure on companies within their portfolios to improve their bottom line and unit economics – particularly those considering a 2020 IPO.
The sudden emergence of COVID-19 in different areas of the US created significant ripples within the US economy and created major waves in the public markets. A significant amount of in-progress IPO activity ground to a halt, with a number of companies due to file postponing their intentions indefinitely.
Looking forward, VC investment in the US is expected to slow substantially in Q2’20 as deals get more difficult to complete and VC investors hold back from making major new investments in order to focus on their existing portfolios. A small number of companies could see upticks in VC investment should their products or services be particularly conducive to the current economic situation; for example, companies in biotech, digital services, or delivery and logistics.
In the event the pandemic continues for several months, there could be an increase in distressed investing as startups struggle to cope with the impact of COVID-19 and both VC and corporate investors with large pocketbooks look for deals.