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A new Silicon Valley venture report shocks — because of how little the pandemic has impacted dealmaking

A new Silicon Valley venture report shocks — because of how little the pandemic has impacted dealmaking

by Amelia Scott — 2 months ago in Business Ideas 3 min. read

The law company Fenwick & West has released some fresh information to emphasize how Covid-19 has affected the area of venture capital in Silicon Valley.

The biggest surprise? It is how little influence the international pandemic appears to have had on dealmaking this spring.

Consider first that valuations in April were actually higher than in March, and that despite massive layoffs in the tech sector, so-called up-rounds only declined modestly, from 72% in March to 70% in April.

In reality, though you would think the substantial disruptions motivated by virus could quicken things tremendously, it seems more like the continuous continuation of a trend that started this past year, when 83 percent of financings saw businesses receive higher valuations.

Our guess is that this change actually happened around the time of WeWork’s pulled IPO last fall, which apparently reminded investors that what goes up — up and up — occasionally comes down quickly, also.

However, it does beg the question: what about down rounds? Certainly, there were lots of those this spring (you might imagine), such as startups from the travel business or that count on the travel sector for a customer.

But Fenwick’s information, at least, tells another story. The amount of prices which were discounted by investors accounted for only 12% of deal quantity in April; that is significantly lower than in March, when 16% of businesses experienced rounds down.

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It will make sense, since the information is unique to April independently, particularly when accounting for its many startups which were pitched a more lifeline by their own investors in the kind of extensions to previous rounds which were closed before this year or late last year.

Investors do not like seeing their bargains discounted by new investors.

The believing, also, is simply to find the firms through this tough patch, then determine what is what. (Relatedly, there has been a substantial growth in horizontal rounds: 18 percent in April, as opposed to 13 percent in March and 9 percent this past year.)

More surprising was that the sheer pace of investing in startups in Silicon Valley. Although there was discussion about shareholders needing to quit and evaluate the health of their portfolio businesses out of mid-March to early April, it appears now that VCs never actually stepped off the gasoline.

According to Fenwick, the amount of prices really increased from 54 from March to 64 in April; which almost matches the 65 prices per month which were finished this past year, once the world was not grappling with an outbreak.

For what it’s worth, many of these were later-stage deals. Fenwick’s data shows the percentage of Series D and E+ deals increased to 38% of all financings in April, up from 21% in March and the highest that figure has been since August 2018, when Series D/E+ deals combined for 42% of all financings.

Simply speaking, VCs were plowing more money into what they view as certain things — and in to management groups that they were not fulfilling for the very first time .
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However the disconnect between what is going on in the world along with the rate of enterprise investment is somewhat jarring.

Asked about the amounts, among the report’s writers — longtime attorney Barry Kramer — mentioned above email that averages”can vague” that the disparities in how firms are being affected at the moment, with a few benefiting from the stay-work-learn-at-home change, while others, such as biotech research, hardware and manufacturing being hurt by it.

However he noticed that regardless of the current headlines, for today,”we are not seeing huge upheaval or dread in the business.”

VCs are rather”adjusting to the present scenario.”

Amelia Scott

Amelia is a content manager of The Next Tech. She also includes the characteristics of her log in a fun way so readers will know what to expect from her work.

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