VC valuations resilient in the face of coronavirus pandemic
Venture capital pre-money valuations across all financing stages remained resilient during lockdown, according to new research.
VC deal sizes remained healthy during the second quarter even as business optimism waned in the face of the pandemic. Pre-pandemic deals that remain to filter through have helped, as well as rising valuations tied to software and late-stage investments.
Analysis by Pitchbook shows coronavirus had little effect on seed-stage and early-stage European companies in the second quarter. The median angel and seed pre-money valuations reached €4m (£3.59m), but EMEA Private Capital analyst Nalin Patel anticipates valuations fluctuating through the rest of the year.
This is in part because smaller firms could fall into financial trouble, especially as government schemes start to unwind in the autumn.
The time from founding until an angel or seed round increased to 2.8 years last year and stayed the same in the first half of this year.
This trend is likely to continue as the pandemic affects startups’ ability to grow. However, the growing time frames have generally been because startups are scaling at a quicker rate and avoiding upfront costs by using technology or bootstrapping.
Early-stage valuations and deal sizes have been largely unaffected during the first half of the year, and Pitchbook argues confidence remains healthy. The median valuation grew to €8.8m (), while the top and bottom quartiles fell slightly quarter-on-quarter to €17.5m and €2.9m respectively.
Impressively, early-stage company pre-money valuations are pacing higher in the six months to June than last year’s annual figures. Even as the top and bottom-quartile valuations declined in the second quarter, they were tracking higher than 2019’s full-year figures.
Late-stage deals have contributed €12bn to total deal value in the six months to the end of June, equalling 2018’s full-year total and on track to eclipse last year’s figure.
Median deal size reached €5.1m in the first half of the year even as demand in some sectors fell and economic growth slowed.
“We believe investors and management teams will now focus on ensuring existing late-stage portfolio companies do not fall into financial trouble as we move into the second half of the year,” says Patel. “Attention will turn to equipping late-stage startups to capitalise on the recovery with their existing market penetration.”
Those in the software sector are, perhaps unsurprisingly, expected to remain robust through the second half of the year since tech-heavy firms have performed well during lockdown.
Median software deal sizes have risen as companies insulate from the downturn. Similarly, median pharma and biotech deal sizes have done well during the pandemic, with early and late stage deals trend higher, while angel and seed deals track slightly lower than 2019.
“While the race for a COVID-19 vaccine is underway with unparalleled vigour and investment investors and entrepreneurs will be looking towards the sector for opportunities to fund the next batch of startups striving to prevent future public health disasters and mitigate lasting effects from the pandemic”, says Patel.