Venture Capital Benchmark

Q4 2020

North America, Europe and Latin America.

Welcome To the Status of Venture Capital Report Q4 2020

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Here, we break down the VC activity in North America, Europe and Latin America and what it means for you as an investor or founder.

After going through market intelligence from the industry's most trusted sources, here’s the topline review of what went down in the VC world last quarter…

Did You Realize That Most Founders And Investors Will Still Prefer Zoom Meetings?

...Even after a vaccine, according to a NFX survey of 526 Founders & Investors!

The same survey found that an overwhelming 68% of Investors are likely to invest in startups outside of existing tech hubs like the Bay Area, New York, or Los Angeles.

Why this matters...

We see a new status quo for VC investments, one that is no longer limited by geographical barriers.

Pandemic has removed geographical barriers for founders and investors to meet, benefiting founders outside tech hubs as it translates into a higher volume of meetings and perhaps faster fundraisings.

This shift is further driven by the recent trend of founders and startups relocating outside tech hubs and the continued preference for Zoom meetings.

2020 in a nutshell

2020 was a bumper year for VC with the highest record totals ever.

Startups finished 2020 much stronger than how they started the year, with venture funding in the Americas and Europe up 25 percent year over year to $194 billion. Deal value in the USA topped $150 billion for the first time.

Driven Heavily By Industries Heavily Disrupted By The Global Pandemic

Work, health care, education, finance, shopping and entertainment were the most affected. Demand skyrocketed for tech infrastructure and cloud services companies supporting this transfer, leading to a strong IPO and M&A market as companies looked to consolidate and compete.

Particularly In Later-Stage VC - Series C And Later Rounds

That segment grew 8% over 2019. Private equity growth in venture-backed companies was even more pronounced, at 73% over 2019.

Aggregate deal values remained strong.

Even Though Deal Counts Continued To Drop As Investors’ Flight To Quality Continues

Funding in Q4 slightly topped Q3 at $54.3B, making Q4 the biggest quarter in investment dollars in at least the past three years. COVID hit Q1 the hardest in 2020, but the funding pace was already back on track by late March.

We Consistently Saw Less Deals In Q4 Across Regions And Stages

However, the total deal counts across the Americas and Europe were still up 10%. This growth margin is expected to only grow as a large percentage of seed funding is added over time.

Let’s Look At The Numbers….

USA vc landscape in Q4 '20

In The USA, The VC Dollars Invested Dropped

Investment dropped 5% since the last quarter but still show solid 40% growth since Q4 ‘19. The deal count also dropped 17% since last quarter and 19% over Q4 ‘19.

Europe Seems To Be Bucking The Downward Trend That We Saw In The US Rather Well

As the VC dollar invested jumped 25% over last quarter and 80% over Q4 ‘19. However, the deal count plunged even further than the USA at 20% since last quarter and 37% over Q4 ‘19.

In Latin America, The VC Dollar Invested Almost Held Steady

It only dropped 2% since last quarter but showed a phenomenal 93% growth over Q4 ‘19. However, the deal count continued to suffer and was down 23% since last quarter and 38% over Q4 ‘19.

The massive jump in dollar invested is artificial, as three mega-rounds contributed 57% towards the $1.4B in the VC dollars invested in LatAm in Q4.

Diving Deeper Into The Stages Tells Us What’s Happening At Ground Level…

At $2.5 Billion, Seed Funding In Q4 Was Down 18% Since Last Quarter and 10% over Q4 2019, per Pitchbook data. Note that data lags for seed funding are the most pronounced, so these percentages will likely come down over time.

Although Current Figures Show A Decline In First-Time Financings...

Lagged data may push 2020’s deal total above 2019’s, which would mark the highest annual count since 2015, which would be a surprising outcome given the overall climate in 2020. The year had a solid ending for first-time financings despite headwinds. After a swift decline in Q2 at the onset of the pandemic, first-time financings have begun to return to past years’ levels.

Early-Stage Deal Activity Finished Strong In 2020 Even Within COVID Context

Early-stage funding also racked up $17.5 billion deal value in Q4, up 17% since last quarter and beating Q4’ 19 numbers but more than a third at 35%. Overall, early-stage VC in 2020 was down 11 percent compared to 2019.

Late-Stage Total Deal Value Dropped 4% Since Last Quarter

With 1119 rounds raising $33.6 billion. However, we expect this drop to close as Q4 deal numbers continue to trickle in over the coming weeks and months. Also, bear in mind that Q4 deal value growth was up 67% over the same period in 2019. So plenty to celebrate here!!

The Sheer Amount Of Capital Available To Late-Stage Has Fueled Its Explosion

As we've seen for the past 3 years. We have only seen strength from nontraditional investors, who many expect to pull back during the tumultuous past year. The robust exit market from the past two years will continue to drive distributions back to LPs, reaffirming allocations to VC.

VC perspective...

Investors have increasingly concentrated capital into mature companies for many reasons, among them the shift to remote work and the complications to dealmaking that it produced.

Late-stage companies tend to possess more concrete financial metrics and other operating data points relative to those in earlier stages of development.

With this data, investors can more confidently complete a transaction without meeting the founders face to face, putting earlier-stage companies at a disadvantage.

As COVID-19 vaccines roll out, we expect VC investors to return to prepandemic behaviors around due diligence in the near term.

Exit Landscape

In 2020, 41 Venture-Backed Companies Were Acquired For More Than $1 Billion, selling for $104 billion collectively. That was the highest count and amount for billion-dollar exits over the past decade.

All Told, More Than 1,500 Companies Were Acquired For $149 Billion By More Than 1,300 Acquirers In 2020. The largest acquisition of the year was for business cloud software provider Infor, acquired by Koch Industries for $13 billion.

Notables In 2020

In 2020, 65 tech companies went public, raising a total of $38.6 billion – a significant improvement over 2019, which saw 49 companies go public raising $25.8 billion (Source: Dealogic).

Airbnb and DoorDash were the two most highly valued venture-backed companies to go public via IPOs in 2020.

VC Perspective...

In the IPO market, decacorn valuations continue to grow as 13 venture-backed companies debuted at a valuation above $10 billion in 2020 - the highest count in the last decade!

What We're Expecting From Public Market In 2021

2021 will be a busy year for IPOs

Public Investor Enthusiasm For The Biggest Names Is As Strong As Ever.

Following 2020, which set a record for the amount of capital raised in IPO, we expect 2021 to be a busy year for IPOs. Public market performance of Airbnb and DoorDash indicates public investor enthusiasm for the biggest names is as strong as ever.

IPOs We're Watching Closely...

Instacart: the on-demand grocery-delivery service was last valued at $17.7 billion (Oct ‘20) and is expected to IPO in early 2021.

Coinbase: digital currency trading exchange was last valued at around $8 billion (Oct ‘18). It could fetch a generous valuation in the public markets, given investor enthusiasm for all things crypto.

2020: The year that was

To say that 2020 was an unusual year in markets would be a vast understatement.

2020 was an unusual year by any stretch of the imagination, and we saw that in public markets too. We witnessed the quickest and deepest bear market plunge in history, as well as the fastest recovery from it ever.

The Winners

Software Applications: Companies that enabled remote working and ecommerce were among the top performers.

Internet Retail: Aside from Amazon, ecommerce players like Etsy and Wayfair also had incredible years.

Freight and Logistics: The acceleration of ecommerce happened faster than anticipated.

The Losers

Banks: Record low interest rates and high credit risks affected banks greatly.

Airlines: Airlines have really struggled in 2020.

Aerospace/Defense: Many aerospace and defense players have been unable to rebound to pre-pandemic levels.

What We're Expecting In 2021

Disruption will accelerate

The Global Impact Of The Crisis Will Accelerate Pre Existing Transitions.

Crisis creates opportunities

COVID Has Reinforced The Legitimacy For Public Investments In Health Systems And Infrastructure.

Explosion of micro vc

The Rise Of Operator Angels + Micro VCs Will Explode In 2021

Esg reaches a tipping point

Investors piled a record $27.7 billion of inflows into ETFs traded in U.S. markets.

SPACs cool down

We believe SPACs are going to enter that phase in 2021.

Finding balance b/w hubs vs. offices

The World Tries To Find A Balance Between Remote Work And Office.

Hottest Sectors in 2021

Pay attention to Remote Work, AI, CleanTech & Environment, Health & Hospitals, and Blockchain & Crypto - the hottest sectors in 2021.

Conclusion

With the vaccine going into mass circulation in 2021, life is slowing inching towards pre-pandemic norms. This means that the adoption of online services will slow down. 2020 was a landmark year.

What Technologies Will The Next Wave Deliver?

At TheVentureCity, we will continue to back founders that are ensuring that this next tech wave delivers on the productivity gains and automation that we are all promised.