The Q1 2020 Global VC Report: Funding Slowly Impacted By Coronavirus

Gené Teare Joanna Glasner

April 17, 2020

Chronologically, the first quarter of 2020 began just over three months ago. But psychologically, it feels like a lifetime ago. The New Year rolled in with bullish expectations for startup investment across much of the globe. Now, consensus is we’re in for a protracted decline.

It’s been a long time coming. For the last two years we have experienced a bull run in funding to startups. Per Crunchbase data, 2018 was the peak year for global investment, with 2019 the second-highest for invested dollars in startups in the last decade. Over the course of last year, China pulled back substantially, the U.S. was down a bit, Europe grew and Latin America’s investment rose as well.

Against this backdrop of unprecedented funding amounts in the last 24 months–with more than 25,000 startups funded annually–we face the biggest downturn since the financial crisis of 2008.

By our counts 5,000 to 7,000 startups per quarter dependent on venture funding to grow are immediately impacted. Startups in last-mile mobility, travel, hospitality and other sectors have seen their markets wiped out overnight. Reports are circulating of crisis fundraising to stave off bankruptcy by unicorn startups with business models geared for growth.

In the first quarter we have begun to see global invested amounts come down, with distinct trends in different regions based on the timing of shelter-in-place orders and the spread of COVID-19.

For China, we identify an accelerated slowdown in Q1 2020. Europe posted a slower decline, and the U.S. and Canada showed growth quarter over quarter, but less so year over year. Many deals announced in the last weeks of March–since shelter-in-place regulations were enacted in the U.S., Canada and Europe–were negotiated in a very different and more bullish investment climate.

In the second quarter we do expect a more pronounced reset due to the coronavirus pandemic.

Below, we take a look at trends for the first quarter across a range of metrics focusing on investment totals (Money In) and exits (Money Out).

Money In

Pace of dealmaking

Crunchbase projects 7,600 venture rounds generated in Q1 2020, down from the last quarter by 5 percent and down year over year by 4 percent. Since the first quarter of 2018, total projected venture deal volume has been above 7,000 rounds per quarter peaking at around 8,500 in the second quarter of 2019. That makes 7,600 rounds the lowest projected count in the last five quarters.

Projected VC dollar volume

Next up we look at overall projected invested dollars. Crunchbase projects that around $63.8 billion was invested worldwide in Q1 2020, down from the last quarter by 17 percent and down year over year by 8 percent. This is projected to be the lowest amount going back for two years in venture funding with the peak happening in the fourth quarter of 2018 at $83.6 billion.

North America’s proportion

For this most recent quarter, with overall deal counts down, the geographic split between the U.S. and Canadian market versus the rest of the world has shifted. The U.S. and Canada represent a larger slice of deal volume in the most recent quarter, coming in above 40 percent.

For this most recent quarter, with overall invested dollars trending down the U.S. and Canadian market grew. The two countries represent a larger slice of dollar volume in the most recent quarter, above 50 percent relative to other regions; the highest percent in the last five quarters.

Next we look at funding by stage, from seed through late-stage funding, to understand the dynamics at each funding stage in the last quarter relative to the previous four quarters.

Stage-By-Stage Analysis of Q1 2020 VC Funding Trends

Angel and seed-stage deals

Crunchbase projects that approximately $3.3 billion was invested across 4,896 deals in Q1 2020 in seed-stage deals. Seed-stage rounds include angel, pre-seed, seed and a subset of rounds below a certain threshold. This represents the lowest amount invested in seed-stage rounds for the past two years, with the largest drop at 27 percent in dollars invested quarter over quarter.

Early-stage deals

Early-stage deals include Series A and B rounds and a mix of undisclosed venture rounds below a certain amount. See our methodology section for more details.

Crunchbase projects that $22.3 billion was invested across 2,170 deals in the first quarter. Count and amounts are down across the board with the most significant drag on quarter over quarter dollars invested down by 23 percent, marking the lowest recorded quarter since the fourth quarter of 2017.

Early-stage deal averages came down quarter over quarter, but the median trended up quarter over quarter.

Late-stage deals

Late-stage deals include Series C+ rounds as well as a subset of larger nondesignated venture rounds. Crunchbase projects that $36 billion was invested across 502 deals in the first quarter in late-stage venture rounds. This is down quarter over quarter and marginally up year over year.

For late-stage rounds we see a settling of median and average from the high point of the fourth quarter of 2019.

Technology growth rounds are private equity rounds in venture-backed companies. We include these to more accurately represent late-stage funding for venture-backed startups.

Crunchbase projects that $2.2 billion was invested across 30 deals in the first quarter in technology growth rounds. This is the investing stage with the largest pullback year over year, at over 50 percent. It’s also the category that sees the highest volatility, as the presence or absence of a few huge deals can heavily skew the totals.

Money Out

Venture-backed acquisitions

Acquisition activity was down in Q1, based on reported data. A total of 325 venture-backed companies globally sold to acquirers in the quarter, bringing in at least $30.4 billion in proceeds. (Since a large portion of deals do not have a reported price, the actual totals are higher, but unknown.)

While $30.4 billion sounds like a big number, it’s actually a steep decline from Q4, during which there were 353 known acquisitions bringing in a reported total of $59.4 billion. As illustrated in the chart below, Q1 stands as the second-weakest quarter of the past five for venture-backed M&A deals:

A few really large deals helped boost the Q1 totals. Fintech in particular was hot, with Intuit’s $7.1 billion purchase of consumer credit portal Credit Karma ranking as the most expensive venture-backed M&A deal, followed by Visa’s $5.3 billion purchase of payment technology provider Plaid.

Other big deals include Salesforce’s $1.32 billion purchase of  mobile software provider Vlocity, and buyout firm Hellman Friedman’s $1.15 billion buy of application security provider Checkmarx.

Notably, we didn’t see startups out of Asia on the largest M&A deals list. The coronavirus outbreak in China, which began escalating in January, is potentially a contributing factor.

Initial public offerings

Despite hopes that 2020 would be a big year for unicorn market debuts, the pace of IPOs was slow in the first quarter.