Performance of the global venture capital industry in Q2 2020.

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Worldwide, VC-backed companies raised almost USD 62.9 billion in 4,502 transactions in the second quarter of 2020.
It is expected that many VC investors will continue to focus strongly on their existing portfolio companies.
It is expected that investor interest will increase vis-à-vis companies that will respond to the “new normality”.

KPMG Private Enterprise recently presented its report Venture Pulse Q2 2020. The report provides an excellent insight into the global and local venture capital industry. In this article we have provided a super condensed and summarized version of the key trends, challenges and opportunities in the global venture capital market for Q2 2020. You can read the KPMG report here.

Worldwide, venture capital-backed companies raised nearly $62.9 billion in 4,502 transactions for Q2 2020.

Covid-19 and venture capital market

The ongoing global pandemic affected every sector and industry in the world. The challenges associated with the second quarter of 2020 continued to be – travel restrictions, increased unemployment, closures in major cities, economic slowdown and full of economic uncertainty.

The number of global venture capital deals in Q2 2020 was 4,502, drastically less than in the previous period. The good part remained, however, that almost USD 62.9 billion was invested across the entire spectrum of VC financing.

VC financing continued to focus primarily on late-stage business opportunities, which were more stable and mature operations with visible cash flows. Even the limited partners were more comfortable in the current climate to commit to proven managers and/or existing relationships. Late stage deals were better evaluated prior to financing compared to seed stage deals.

For early stage VC deals, there was a significant decline in Q2 2020, which is expected to continue in the near future. Due to the pandemic and the US presidential elections in November 2020, VC investors who were supposed to exit via Initial Public Offerings in 2020 postponed their plans until 2021.

Cautiously optimistic VC investors

Until the first half of 2020, worldwide fundraising continued to be significantly higher than last year’s figures. Experienced investors focused on the better long-term risk-adjusted returns compared to the short-term slumps of the economic downturn and Covid-19.

Geographically, the U.S. and Europe have proven to be more resilient in terms of venture capital investments compared to more general economic trends. In Q2 2020, Asia remained relatively softer in VC investments.

Compared to IPOs, mergers and acquisitions played a better role in the exit process of venture-backed companies and in raising liquidity.

Opportunities in the local market

For H2 2020, venture capital investments remained somewhat buffered, as the conclusion of VC deals is usually associated with a long lead time. It is likely that the true picture of the resilience of the VC market will be reflected in the deal/investment figures in Q3 2020.

In the coming quarters, many VC investors are likely to focus more on local market opportunities due to the challenges of international travel and the uncertainties associated with a pandemic. This will have a negative impact on those countries that are dependent on international VC financing.

It is expected that many VC investors will continue to focus heavily on their existing portfolio companies, assessing the impact of the current uncertainties and ensuring that they make liquidity adjustments for subsequent rounds of financing and likely delayed exit plans.

It is expected that VC investors will become increasingly interested in the companies that will respond to “new normality” such as distance learning, e-commerce, and health and biotechnology.

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