Venture Investments 2020: What’s Going On and What to Expect Further
Risky investments market is usually considered to be optimistic. Since startups face high levels of uncertainty, venture capital has a high failure rate. Startups are usually based on innovative technologies or business models and usually come from high-tech industries such as information technology (IT), clean technology or biotechnology.
Concept of Venture Capital
Venture capital (VC) is a form of private equity financing provided by venture capital firms or foundations for startups, into startups that have high growth potential or expanding (in terms of the number of employees, annual income or both). VC firms or risk funds invest early in these companies in exchange for the capital or shares of these companies. Venture capitalists fund risky startups in hopes of at least some companies they support to become successful.
COVID-19 Impact on the Venture Investments
But that belief was suddenly shaken in April as COVID-19 forced startup investors to take a break. For example, according to the PitchBook Data, U.S. we can state the following:
- VC investments in 2020 fell a whopping 46% from March to April;
- April’s total of $7.3 billion in investments nationally was down 43% compared to April of last year;
- the number of deals fell to 600 deals in April, that compared to 867 deals in March, and 1,060 deals in April 2019.
Scenarios of Market Development after a Pandemic
Therefore, many VC firms expect a continued slowing down of activity. Meanwhile, they are still interested in promising projects for investing, when reducing the number of new projects and trying to maintain this “new rules” for the coming months. As stated by Sander Vonk, Managing Partner at Volta Ventures: “At Volta Ventures we expect a steep decline in the number of startup investments deals in Q2 with careful recovery in Q3 and Q4 2020 depending on the duration of the financial impact of the new coronavirus”. This sentiment is echoed by Romain Lavault, of Partech: “Most startups should expect a “new normal” with fewer rounds, more syndicated deals and probably more caution on valuations”.
Therefore, the world has focused its attention on innovation with impact in recent weeks. From hackathons that offer crisis solutions to startups that offer new useful services, it’s all now just about income. The perceived value of startups with social or environmental impacts is increasing, that could mean a new start for the recognition of social enterprises. Some venture capital firms even go even further, i.e. highlight the specific “trends” that have occurred (and will continue to evolve) in a post-coronavirus world. From the future of work to online health care — you can work in any of areas where there is an increase. According to the GeekWire data, the top three companies raising money last month — 98point6, Avalyn and Blaze Bioscience — operate in the health or life sciences arena. Together, those three Seattle companies have raised $101 million, or more than half of the month’s entire haul.
To sum up, venture investments market has been struggling from the COVID-19 crisis too much. But now expectations become more clear and while some companies are cutting staff, the disruption is creating huge opportunities for those who are seeing a quicker shift to digital offerings, telehealth services, online education products or medical innovations. So it’s up to you to decide either to hide from the storm or to ride it – UAPP can help you find out your way to handle it!