Venture Capital Benchmark

Q2 2020

North America, Europe and Latin America.

Welcome To the Status 
of Venture Capital Report 
Q2 2020

Join us remotely February 22nd - 26th to learn how your  startup can build a repeatable playbook to acquire, retain & grow customers.

Welcome to another issue of a series where we breakdown global venture capital activity and what it means for you as an investor or founder.
This brief is a digest of market intelligence from the industry’s most trusted sources, offering a bird’s eye view of the ever-changing venture landscape.

Q2 in a nutshell

Impact of COVID-19 to-date (Q2 ‘20)

Deal count was already downward

And COVID-19 Sharpened The Trend

Total amount invested...

Held Strong In The US And Europe

Although it has shifted more towards later-stage deals. While they have seen less investment in Q2 ’20 than in the same period last year, they have seen growth vs. Q1’20.

LatAm has been hit much harder, however, with an 80% decrease in total dollars investment vs. Q2 ’19 and by 28% vs. last quarter.

Average ticket size increased as expected

In The US And Europe, It Had Been Increasing With Respect To Last Year

Let’s Look At The Numbers….

What To Expect

Winter is coming

Actually… Not Yet

In our last issue, we predicted that Venture Capital funds would slow down their cash deployment, aka… Winter was coming indeed. But, as you saw earlier, this hasn’t technically been the case in terms of total dollars invested.

What gives?

Public Markets Are Like Freshmen At Spring Break

On the other hand,...

Private Markets Still Continue To Show Plenty Of Forward Momentum

How Does It Affect VCs?

So Far VCs Continue To Write Lots Of Checks

Capital has shifted

And It's Moving To Fewer And Bigger Deals

It Particularly Makes Sense For Early-Stage Investing

As it generally focuses on 5-8 year time horizons. Short term uncertainty could be unsettling, but over the long-term most companies starting now will be on the right side of history.

The best-performing vintages tend to be those that invest at the nadir of a downturn and into the early stage of recovery. For instance, 2009 is the first vintage since the 1990s where VC funds produced a median IRR in the double digits, and returns have remained strong for vintages through the 2010s as well. More than 50% of VCs are not changing their investment strategy at all.

Founders are hedging their fundraising bets

Another trend we are seeing now at early stage investing is that founders are running dual capital raise processes to see which gets traction. We have seen both of the following:

Join us remotely February 22nd - 26th to learn how your  startup can build a repeatable playbook to acquire, retain & grow customers.

  • Seed Stage → founder raising a $2-3m “seed” or a $500-750k “pre-seed”

  • Series A stage → founder raising a $3-$5m “Series A” or a $500-$1M ‘bridge’

? This is a smart strategy that we wholeheartedly support. Any good founder should know best as to the minimum investment needed to de-risk their business, not VCs.

How are LPS reacting?

Confidence Of LPs Who Are Already Invested In The VC Asset Class Remains High Across All LP Categories

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What Does It All Mean For Founders?

What we are seeing in the early stage fundraising landscape is that it’s a great time for founders to raise and for VCs to invest. If you’re even thinking about raising at all between now and Q1 ‘21, raise at least a little bit now to weather uncertainty. Why?

Join us remotely February 22nd - 26th to learn how your  startup can build a repeatable playbook to acquire, retain & grow customers.

  • Right now the public stock market is frothy in the eyes of investors who are looking to other places to invest. This is great for startups!

  • There is quite a bit of uncertainty now regarding the number of COVID-19 cases and when a potential vaccine may be ready. As we go into the fall (it’s already happening now), countries may “shut down” their

  • If this severely affects the stock market (values drop in half), the liquidity for founders could dry up.

Where Does This Leaves Valuations?

Looking at the industry as a whole

VC Valuations Held Up Strong In Q2’ 20

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However...

VCs Report That They Have Seen Lower Valuations Since The Pandemic Began

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If you`re a well connected founder

It Is Likely That Your Valuation Won’t Drop Significantly

The drop in valuations will probably affect most companies that have raised last year. For those founders, we advise benchmarking your startup against the market and comparables in your geography and vertical before setting your valuations so you minimize any shock.

One thing we can say for sure

In Three Months Time, Things Will Look Very Different Than They Do Now

So if you are thinking about raising funds, it would be in your best interest to raise now. We predict that the early stage fundraising markets will be good for at least the summer.

Industries That We’re Watching Closely Due To Developments Through COVID-19

The general theme

B2B Startups Are Seeing Stable Revenues

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Opportunities catalyzed by covid-19

COVID-19 Has Accelerated Pre-Existing Tech Trends

In the previous Brief, we spoke about some of the industries that predictably were going to be accelerated by current events. We have seen those sectors take off, particularly:

Healthcare

Naturally, there has been very relevant movement in startups tackling pandemic response. Companies are focusing their efforts on testing, treatments, vaccines, and lab and hospital technologies. The telemedicine adoption curve was pushed up by years. Telehealth visits in the US could top 1 billion this year, per Forrester, which initially expected just 36 million for 2020.

Also, on the health-away-from-the-hospital front, researchers are trialing wearables to detect COVID-like symptoms.

Digitization

In a pandemic-struck world, services that require human contact have had to adapt to the situation through digitization of these services. Likewise, processes that require significant human assistance are turning to automation to reduce that human need.

Automation

Boston Dynamics and Brain Corp are seeing surges in demand for robots that can do dull, dirty, and dangerous tasks. A new dominant use case have emerged for robots: cleaning/disinfecting stores, airports, hospitals, and subway systems.

Supply Chain (Shipping and logistics)


Supply Chain (Shipping and logistics)

Tech is going to drive the new supply chain world. Robotics and AI will bring things locally much faster. This is a massive space where even a small market share in sub-verticals can have really big outcomes.This is why we have backed two companies who are tackling this massive opportunity, SimpliRoute and eCustoms who are tackling freight brokerage, a market that is particularly ripe for disruption.

Vertical Deep-Dive: Online Groceries And RetailTech

Physical retail is shifting online

All Through Rising E-Commerce Sales Or Malls Being Replaced By Online Fulfillment Centers

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On the demand side

Online Grocery Shopping Is Continuing To Reach Even Higher Numbers

As consumers are in no mood to return to the store yet. This trend is expected to last until we have a vaccine, which is expected to be around Q1 ’21 at earliest (but really it’s anybody’s guess). Hence, growth is driven not only by new customers who jumped on the bandwagon after COVID-19 but also because customers are now ordering more frequently than ever.

Supply is also increasing

To Meet That Demand, More Retailers Have Added Capacity For Online Order Fulfillment

Thank you Shopify! The retail market has increased capacity across the board with greater choice (or options) for shoppers. Though in reality, these trends are not only limited to online groceries.

For Us As VCs It Means That...

We are particularly interested in startups that are helping established retailers accelerate their efforts to make shopping online even more seamless. One of our portfolio companies, Bitphy, is targeting this exact challenge, helping brick-and-mortar stores bring inventory online.

What Does It All Mean For Founders?

What we are seeing in the early stage fundraising landscape is that it’s a great time for founders to raise and for VCs to invest. If you’re even thinking about raising at all between now and Q1 ‘21, raise at least a little bit now to weather uncertainty. Why?

Join us remotely February 22nd - 26th to learn how your  startup can build a repeatable playbook to acquire, retain & grow customers.

  • Worse growth prospects, and high uncertainty environment hammering deal count, particularly in early-stages. Capital has shifted more heavily towards later stage deals.

  • Contrary to popular belief, LPs familiar with VC remain confident and open to allocate. This is thanks to lower valuations and digital acceleration across all verticals, which is opening up a lot of opportunities for VCs.

  • It’s a great time for founders to raise and for VCs to invest. Founders who need to raise prior to Q1 ‘21, should raise NOW to weather uncertainty. Early stage fundraising markets will be good for at least the summer.

  • Early-stage founders should consider running dual capital raise processes to see which gets traction. Like being open to a $2-3m “seed” or a $500-750k “pre-seed” for a seed stage company.