VC deal volume in the US dropped to a seven-year low of 2,197 in the second quarter of 2020, according to a recent report from KPMG. However, deal value remained remarkably stable at $34.3 billion, buoyed by large investments in late-stage companies.
Globally, VC-backed companies raised $62.9 billion across 4,502 deals, nearly equaling investment in Q1 2020 and only slightly below Q2 2019, which saw $69.9 billion invested.
The five largest deals were in the US and China: California-based Waymo ($3 billion), Shenzhen’s MGI Tech ($1 billion), Hangzhou-based Didi Bike ($1 billion), San Francisco-based Stripe ($850 million) and Beijing-based Zuoyebang ($750 million).
The Americas led VC investment in Q2, with $35.6 billion raised across 2,354 deals. Asia followed with $16.9 billion raised across 1,011 deals, while Europe saw $10.1 billion raised across 1,062 deals.
The US accounted for the overwhelming share of deals, with only $1.3 billion across 157 deals going to companies in the rest of the region. Canadian investment remained relatively healthy, with biotech and edtech being bright spots. Latin America’s VC market was hard hit due to widespread travel restrictions and a reliance on international investors.
In the US, investments spanned numerous sectors, including automotive, agriculture, fintech, biotech, and application software.
According to the report, investors focused on companies already in their portfolio, and particularly on late-stage firms, which are seen as “safer bets.” Consequently, the number of early-stage and first-time deals fell: globally there was $10.2 billion invested in 2,439 deals in the first half of 2020 – well off the pace of 2019’s $28.2 billion in 7,490 deals.
Though the impact of the pandemic on the VC market has been limited so far, it has attracted more attention to areas relevant to the “new normal” of pandemic society – including B2B productivity, cybersecurity, digital services, and e-commerce. B2B productivity solutions accounted for $14.3 billion in global VC investment in H1 2020, according to KPMG.
The pandemic has also focused attention on the need for healthcare disruption, attracting solid investment to life sciences and biotech solutions firms. In the US, cancer screening company Grail raised $390 million and drug developer Erasca raised $200 million in Q2 2020.
The report noted that a disruption in international travel could cause many VC investors to focus on local markets – resulting in a negative impact on growth-stage companies in less mature jurisdictions reliant on foreign capital.
“There is still a significant amount of uncertainty around the world heading into Q3’20. While VC investment was buffered somewhat in Q1’20 and Q2’20 by the long lead time for deals, Q3’20 will likely show whether VC investment will withstand the full brunt of the pandemic’s impact,” said Kevin Smith co-Leader, of KPMG’s Private Enterprise Emerging Giants Network. “The next couple of quarters could be a rocky road for VC investment, particularly in countries that rely on international investors.”