VC investment in the US held relatively steady in Q2’20, even as VC investors and businesses juggled with the challenges of COVID-19. While Q2’20 included some deals that would have been initiated prior to the pandemic, it also included a significant number of deals supporting companies offering ‘go-to’ solutions given the current situation.
VC investors taking a longer-term view
Despite the number of deals in the US plummeting, numerous large deals occurred during Q2’20, including a $3 billion raise by Waymo, an $800 million raise by e-payments facilitator Stripe, and a $700 million raise by IOT and AI-powered business productivity firm Samsara.
VC investors in the US appear to be taking a longer-term view of the pandemic’s impacts. While VC investors may have had to rethink their assumptions as to the timing of their portfolio companies to become profitable or to hold a successful IPO, they are continuing to support the ones they expect will be able to be successful after COVID-19 has run its course.
At the same time, the sudden impact of the pandemic has caused VC investors to further enhance their focus on the efficiency, effectiveness, and profitability of companies. Changes that startups are making to improve their operations and cash flow to better weather COVID-19 could have the added benefit of helping them reach profitability sooner — a win-win for both startups and their investors.
While many VC investors in the US focused on managing the needs of companies within their existing portfolios during Q2’20, they also showed interest in companies with highly relevant, scalable business models aligned to meeting the needs of consumers and businesses within the ‘new normal’ — particularly companies focused on B2B productivity, cybersecurity, digital services, and e-commerce.
Trends to watch for in the US
Looking ahead to Q3’20, there is expected to be an acceleration of several key trends that have been affecting the US VC market over the past few quarters — including the scrutiny VC investors are giving to profitability and unit economics, the prioritization of late-stage over early-stage deals, and the increasing interest in B2B solutions, AI and data analytics, and life sciences. Given the increasing use of digital business models and remote work arrangements, cybersecurity is also expected to see increasing interest from VC investors in the US.
Given the ongoing travel restrictions in many jurisdictions, there will likely be a slowdown in international investment by US-based VC firms. With several large unicorn companies laying off skilled workers, there could also be a slowdown in investment outside of major hubs as talent becomes more readily accessible.