Venture Deals in 2020

Since the Coronavirus was labeled a ‘pandemic’ on March 11th, over 372 startups have laid off more than 39,000 employees. The latest big announcement being yesterday with Airbnb and 25% of their staff being cut (equating to 1,900 employees), even after they just took on $2bn in debt. Airbnb also cuts deep as it’s a household name that everyone likes, uses, and finds to be unique: the Switzerland of startups – even their competitors don’t come in a close second to them.

All of this is driven by the world economy slowing down: businesses and consumers have pulled back spending and new customers are harder to come by. It’s also known that landing new customers are usually 5x more expensive than retaining existing clients. What I’m seeing are startups reducing costs, protecting their cash, focusing on customer retention strategies, and (still) attempting to grow. After all, VC and PE firms essentially allow these companies to run unprofitable for years via the provided funding. If growth slows, it hurts.

There will be losers and winners. That will span VC’s winning, startups winning, employees winning, and everything on the flip side as well. PE funds will likely be repriced coming up, in what I view as one big hit from most shops given the quarterly reporting, I doubt any fund will continuously drop their valuations. LPs are likely to pull back depending on their industry and risk appetite, and seed sounds and micro-funds are likely to dry up from what I can see. This, of course, is all dependent on how long these stay-in-place orders last and be get back to ‘normal’.

Overall deals were down >30% from Q120 compared to Q119. Some sectors were and are being less affected than others. For example in fintech:

  • Q119 Mean / Median transaction size $30m / $8m of 332 transactions
  • Q120 Mean / Median transaction size $32m / $8m of 330 transactions

But when you look overall, commercial services followed by software have been hit the hardest in the past quarter. The total number of deals was down across every industry, but the total amount of capital deployed was not: media performed well, as well as energy (sans oil…).

I personally am very curious as to what Q220 data will show. This will be more indicative of the true reaction of companies and funds alike. Regardless, a new normal will settle. What I’m sure of that exit scenarios will be much less over the short-term (<1 year) across acquisitions, IPOs, and buyouts.

If we can wrap Covid-19 ‘up’ and put it behind us shortly, the venture market will likely react as it did in 2008: a few quarters of a dip and back to normal vs. the 2001 reaction where everything and everyone took 4 years to begin growing again in the venture world.

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