Not So Hyperactive

I wrote a blog post last week in which I said:

The second quarter of 2020 is now behind us and we will see the data on it soon. I suspect what we will see is a very active venture capital market, quite the opposite of what was initially expected.

Well the data is out and its not quite as active as I had thought.

Venture deal activity slowed in the second quarter, with $34.3 billion invested across 2,197 deals, a 23% decline in deal count compared to the second quarter of 2019 but only down slightly from 2,298 venture capital dealsĀ in the first quarter of this year.

Notable among the figures was a slump in seed deals to 315 in the quarter, way down from an average of 650 deals per quarter over the last year. Angel rounds were roughly steady by comparison in the quarter. The dropping investment in seed rounds is attributed to investors re-evaluating their portfolios and shoring up balance sheets for the quarters to come.

Standing out in the data is a trend for investors to double down on portfolio companies, with follow-on financing activity heavily outweighing first-time financing in the quarter. Likewise, there has not been a drop in late-stage activity as deal count tracked at a higher pace than 2019.

In the quarter there were 57 late-stage megadeals, those of more than $100 million. That brought total megadeals to more than 100 this year, on track to surpass the 175 megadeals closed in 2019. The report notes that some of those deals can be attributed to startups experiencing newfound growth amid the pandemic, while others were forced to raise additional funds to weather the economic turmoil.

So Q2 was down from Q2 2019 but almost flat with Q1 2020. The most interesting thing is that Q2 had a very slow start and a very strong finish.

Different segments of the venture capital market fared differently to others with the biggest overall slump occurring in April amid lockdowns across the U.S. The report notes that through April and into early May, many venture capital firms exercised caution, triaging and focusing primarily on stabilizing their own portfolio companies. But investment started to pick up again by mid-May.

That squares with what I have seen, although USV was quite busy throughout the entire quarter.

The strong finish to Q2 bodes well for the remainder of the year and I think for the most part the venture capital sector is very much open for business in the midst of this pandemic.

#VC & Technology