VC trends in Q2 2020: Covid triggered a “mega deals” boom; early-stage investments nosedived

Reliability over risk was the order of the day for venture capitalists during the coronavirus reality, and this looks set to continue as rates of infection ease. In fact, the number of “mega-deals” have reached an industry record whereas early-stage investments are at their lowest ebb in ten years.

Early-stage investments that once defined the culture of so many venture capital firms have hit record lows in 2020. On the other side of the coin, VC firms have “closed 24 different mega-funds of $500 million and above in 2020”, according to PitchBook’s recent quarterly publication on US venture capital, the “Q2 2020 PitchBook-NVCA Venture Monitor.” 

The growing preference for making “safer” business investments has actually triggered a “fundraising boom” in the sector…

A report published this month by private equity firm, CB Insights reveals Q2 2020 to be a “historical record” for mega-funding, where the number of businesses raising “$100 million and more” has grown by 2.9% compared to Q2 2019.

Prior to the coronavirus outbreak, US venture capitalists had enjoyed a decade’s worth of solid share prices and an active buyer’s market. After the global financial crisis of 2008-2009, the 2010s were a good time for the sector, with levels of fundraising, dealmaking and valuations following an upward trajectory. 

Following the coronavirus outbreak this year, however, venture capitalists started to fund what they saw as reliable and low-risk business ventures with a view to supporting them to a successful and imminent exit.

The growing preference for making “safer” business investments has actually triggered a “fundraising boom” in the sector, where “firms closed $42.7 billion worth of venture vehicles in the first half of 2020.”

The report’s findings suggest there were two types of businesses that were likely to secure mega-rounds of investment during the coronavirus peak, including those that serviced the needs of customers during the pandemic and businesses from established sectors that investors believed would secure profits in the near future. 

US “food-to-home” delivery companies such as Instacart and DoorDash are examples of the former and have profited from the isolation and convenience culture the pandemic has created among customers – with both companies securing mega-funding this quarter.

DoorDash has also announced its partnership with pharmacy company Walgreen in order to deliver over the counter medicines to homebound customers. Other businesses that bagged similar levels of funding this quarter included holiday rental companies such as Vacasa – an astute funding decision as leisure, travel and tourism businesses are opening up to consumers again.

Another business that secured mega-funding recently is business automation specialist UiPath, which acquired funds to the tune of $225 million. Rumours are also circulating that Uber Freight, a subsidiary of the famed ride-hailing app, could soon raise half a billion in funding – leading to a possible $4 billion valuation.

VC backed IPOs have also seen some impressive success in 2020. Last week, Fintech startup nCino, a cloud-based bank operating system, tripled its share value from $31 per share to $91.59 by the end of its first day of trading.