Venture financing “down but not out” during our first Covid quarter
The 2Q2020 data (when the first full-quarter impact of Covid-19 was felt across large portions of the globe) is generally good news given the many dire predictions. Although a “reset”, there is resilience and strong activity in spite of the huge blow to virtually every economy.
Our view is based on multiple 2Q2020 reports that have been rolling in.
The Q2 Global Venture Report (Crunchbase) reports financings at $69.5B across all rounds, down by 23% from the same quarter last year and 9% down from Q1, if you remove the distorting effect of the $9B investment into Indian mobile operator and platform, Reliance Jio (led by Facebook). Overall, the 1H2020 investment was down by 7% compared with last year.
A stage-based global analysis shows a decline across all stages in both transaction value and the number of transactions, although the effect was felt more in the earlier stages. The Seed and Angel Stage was down by 37% by value compared with 2Q2019 at £2.3B, Early Stage was down 21% at $19.6B and Late Stage was down 9% at $35.7B.
Global M&A was very strong in the first quarter at $35.8B but was down more than 50% in Q2 at $14.1B, and compared with $24.6B for 2Q2019. After the initial Covid shock at the beginning of the quarter, the majority of IPOs were clustered around June, notably Covid-beneficiary, ZoomInfo (raising $935M).
The Fintech sector was not as badly affected, as reported by Q2 2020 Quarterly Fintech Insights by FT Partners. Financing for Q2 was down 17.6% at $9.3B, by value compared with 2Q2019, but had the 2nd highest number of transactions per quarter, ever, at 479.
Fintech M&A in Q2 took a big plunge at $8.1B, the lowest since 2Q2013. However, the overall 1st Half of 2020 looks much better, with $95B transacted, which compares favourably to all years except for the 2019 bumper year. The Morgan Stanley acquisition of eTrade ($13B) and the Aon acquisition of Willis Towers Watson ($36B) dominated.
According to the Swiss Venture Capital Report 2020, investment in Swiss start-ups proved to be resilient in the first half of the year (CHF 763 million in 105 financing rounds) although the investment value was more than a third lower year-on-year due to the absence of large financing rounds. Interestingly, the share that Swiss investors contributed rose from about a quarter in the long-standing average to about half, due to a sharp decline in investment by European investors.
The good news is that new capital continues to be allocated into the private equity/venture capital asset class. In their quarterly update about new European venture capital funds, impact investor Semantic Ventures reported that 2Q has been the strongest quarter in a long time for with “33 new European funds closing almost €3B in fresh new capital”.
The resilience in investment has been good news, but with no vaccine on the horizon for at least the rest of the year, we remain cautious but hopeful that the same “business as usual” approach can be sustained in spite of the cumulative effect of the lockdown on the economy.
