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Investor Cohort Funding Through The Pandemic

From Crunchbase News:

Alarm bells were sounded in March this year that companies needed to get ready for a changed business environment and prepare for an 18-month runway, with no expectations of being able to raise funding.

It became apparent quite quickly that while some companies had their markets wiped out overnight (especially in travel, recruiting and events), others experienced increased demand as services shifted online.

Here we look at the leading 50 firms by each investor type to see which cohort has pulled back the most.

One caveat for this analysis: The most recent year’s investment counts will increase somewhat relative to previous years, as fundings not announced via the news cycle may be added after the end of a quarter through our venture partner program. This will be more pronounced at the earlier funding stages for micro venture firms.

For the leading 50 investors by each asset class we see the following trends:

Venture capital

  • The leading 50 global firms cut back on investment counts for the first three quarters of 2020 by 15 percent year over year. Based on funding lag analysis, the cut-back goes down to around 3 percent to 5 percent year over year, which is negligible.
  • Firms with increases in investment counts above 40 percent year over year to date include: Upfront VenturesFoundation CapitalData CollectiveGeneral Catalyst and Greylock.

Micro VCs

  • The leading 50 micro venture capital firms cut back more on investment counts for the first three quarters of 2020, at 29 percent year over year. Based on further analysis taking into account funding reporting delays we project this to be down closer to 10 percent.
  • Firms with increases in investment counts above 40 percent year over year to date include Soma CapitalTuesday Capital and Uncork Capital.

PE/alternative investors

  • The leading 50 private equity or alternative investors cut back the least on investment counts for the first three quarters of 2020 by a mere 4 percent year over year. When assessing this data after analyzing for funding delays year over year we find that the top 50 private equity funds will be more active year over year, up by around 5 percent. This contrasts with the 2008 financial crisis where private equity pulled back the most and did not recover through 2012.
  • Firms with increased investment counts above 100 percent year over year include Cormorant Asset ManagementWellington ManagementT. Rowe Price, Fidelity Management, Baillie Gifford and BlackRock.

 

 

2008 is not 2020

The funding trends for each investor cohort differed in 2020 from the 2008 crisis.

  • In 2008, the leading 50 private equity firms pulled back the most and did not fully recover through the 2012 funding period. In 2020, private equity and alternative investors have invested actively through the crisis.
  • The 50 leading micro venture firms were an emerging asset class which cut back the least and then grew post-2009. In this pandemic, micro VC  firms have cut back the most, but still only at 10 percent when our assessment takes data lags into account.
  • It took five years for the 50 leading venture firms to recover their 2007 investment counts, which they did by 2012. In 2020, counts year over year are down by a mere 3 percent to 5 percent when taking into account data lags.

With the stock market currently up, and many tech companies seeking to go public this year, the funding markets through the pandemic are looking very different than 2008.

In the 2008 financial crisis, investors predicted that funding was going to dry up dramatically. To be fair, they had witnessed the dotcom crash of 2000 wiping out the entire asset class.

At the time, I worked at a company in Silicon Valley that had its initial public offering pulled due to the crash. When the company asked the investment bankers when the markets would open up to go public the answer was “never.”

In this pandemic, investors look back at the 2008 financial crisis. Based on our analysis, funding took two to four years to get back to 2007 funding levels. The public markets started rising in 2009 and by 2010 had mostly recovered, according to the Dow Jones Industrial average.

Despite the slowdown in funding,  iconic companies were founded through the 2008 crisis.

A culling of companies can be good for investors–as long as it is not the portfolio company. The companies that make it through will be stronger for it, with a renewed focus on business fundamentals, cost cutting and improved options for success if they come through the crisis possibly strengthened with less competitors.

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