Big Things

11 big things: VCs hunt for knowns in a great unknown

July 19, 2020
Venture capitalists and other investors spent the entirety of the past decade making bets during the longest bull market in US history. There were of course various dips and blips. But on the whole, most graphs tracking VC dealmaking, valuations, exit values and fundraising during the 2010s traversed a steady path up and to the right. 

Then the pandemic arrived. The orderliness of the past 10 years devolved into chaos. And many investors have responded by devoting their time and dollars to those few opportunities where they can still expect some degree of certainty. 

Mega-rounds and mega-funds have been the name of the game in recent months, with VCs and LPs pumping an increasing percentage of their cash into established names. That's one of 11 things you need to know from the past week:
 
In 2020, VCs are navigating a new kind of market. (Colin Anderson Productions/Getty Images)

1. A bird in the hand

This week brought the release of the Q2 2020 PitchBook-NVCA Venture Monitor, our quarterly publication breaking down boatloads of new data from the US venture scene. For me, many of the most interesting notes and angles are related to investors hunting for the familiar at a time when so much of the future is shrouded in uncertainty.

On the dealmaking front, late-stage investments outpaced early-stage rounds in Q2 for the first time in at least five years. Relatedly, the VC industry is on pace for a record number of mega-deals, while first-time fundings are tracking for their lowest annual total in 10 years. Together, these trends illustrate how firms have been eager to pad the balance sheets of current portfolio companies that may be most likely to achieve a successful exit while being reluctant to make new, riskier investments, particularly when in-person meetings with new founders are more difficult than ever. 
 
Some of these new mega-rounds were for companies trying to take advantage of the present moment, such as Instacart and DoorDash, both of which have seen demand swell during the pandemic. Other big funding deals were done by companies in struggling sectors, like vacation rental startups Vacasa and Sonder. The common thread is that they are known quantities—relatively mature companies that could provide a windfall to their backers sooner rather than later. 

The prospect of such a windfall is likely made all the more attractive by a dearth of exits in Q2. Most of the VC-backed IPOs that have occurred have met a boffo reception on Wall Street, but overall exit count is on pace for its lowest annual total since 2011, a stark contrast to last year's unprecedented push of unicorn IPOs. 

Known quantities also continue to dominate the venture fundraising scene. Firms have closed 24 different mega-funds of $500 million or more so far this year, nearly equaling last year's total, while the frequency of first-time funds is on pace for a seven-year low. That's a sign that LPs are opting to commit their capital to established managers with track records of success rather than the many upstarts that made a splash the past few years. Led by major efforts from firms such as General Catalyst, Lightspeed and DCM, the median and average VC fund sizes have both more than doubled compared to 2019. 

The result has been a surprising fundraising boom amid an otherwise turbulent market. Firms closed $42.7 billion worth of venture vehicles in the first half of 2020, by itself a higher sum than all but three of the past 15 full years. 

Another potential result of the retreat by investors into their existing networks and comfort zones could be some unfortunate stats related to female founders, who are already swimming upstream in an industry that often resembles an old boys' club. 

The proportion of deals going to companies founded by women is declining in 2020, and overall deal activity for female-founded startups is on pace to fall after three straight annual increases. The median pre-money valuation for startups founded solely by women is at $12 million this year, compared to $33.4 million for companies founded solely by men. After several years of positive momentum—and in a time when diversity is top of mind for many firms and companies—it's disheartening to see this divide continue to widen. 

I could go on about other thoughts and takeaways from the report, including resilience among nontraditional investors, the divergence of angel and seed deals, and an ongoing biotech boom. But the best way to make sure you don't miss anything is to read the report yourself

2. SPAC attack

Another trend coinciding with the pandemic—the increasing popularity of special-purpose acquisition companies—continued to play out this week. MultiPlan, a private equity-backed healthcare payments specialist, agreed to conduct an $11 billion reverse merger with a SPAC. Electric vehicle maker Fisker agreed to a $2.9 billion SPAC deal of its own. And Pershing Square Tontine Holdings, a massive new SPAC backed by hedge fund star Bill Ackman, increased the size of its upcoming IPO, with new plans to raise as much as $4 billion. 

3. Good timing

Robinhood took advantage of a recent boom in business by adding an additional $320 million onto a $280 million round it originally raised in May. DoorDash, another pandemic darling, revealed a new partnership with Walgreens to deliver over-the-counter medicines and other products. And India's Jio continued to strike while the iron is hot, agreeing to raise $4.5 billion from Google on top of other recent massive investments from Facebook, KKR and more. 

4. Pop culture

The aforementioned success of the VC-backed IPOs that are taking place in 2020 continued this week. Fintech startup nCino priced its offering at $31 per share, above its expected range, and nearly tripled to close its first day at $91.59. SoftBank-backed drug developer Relay Therapeutics also priced its IPO above its expected range and then saw its shares climb more than 75% in their public debut.

5. Star shopping

Darryl McDaniels, best known as the latter half of Run-DMC, dipped his toe into venture capital this week with an investment in a company that hits close to home for the former rapper: Uwill, which operates a behavioral health platform for college students. Fellow celebrities Oprah Winfrey, Natalie Portman, Jay-Z and Howard Schultz were all also in the news, taking part in a $200 million growth investment in oat milk brand Oatly that was led by Blackstone.
 
Oprah Winfrey is searching for deals in Silicon Valley. (Steve Jennings/Getty Images)

6. Newspaper news

The hedge fund industry continued its worrisome takeover of American newspapers this week, as Chatham Asset Management won an auction to acquire McClatchy, a 163-year-old chain that now controls many of the best-known regional papers in the US. To date, Chatham and founder Anthony Melchiorre are probably most famous for owning the controversial National Enquirer tabloid. 

7. The U crew

Business automation specialist UiPath announced $225 million in new funding this week at a $10.2 billion valuation. Reports emerged that Uber Freight could soon raise $500 million in funding that would value the standalone Uber subsidiary at some $4 billion. And another startup whose name begins with the 21st letter, Udemy, is reportedly seeking new capital that could value the edtech specialist at $3 billion. 

8. Other edtech events

Udemy isn't alone. In India, a fellow edtech startup called Vedantu—which seemingly takes its name from the Sanskrit words for "knowledge" (veda) and "network" (tantu)—raised $100 million for its online tutoring platform. CampusLogic scored $120 million in a new minority funding from Dragoneer Investment Group. And Coursera is raising $130 million at a new $2.5 billion valuation, according to The Information.

9. Chip leaders

US-based semiconductor powerhouses Analog Devices and Maxim Integrated lined up a major merger this week, with Analog agreeing to pay more than $20 billion in stock to take over its rival. The deal is expected to create a combined company with an initial market cap of more than $68 billion, and one that could challenge Texas Instruments for primacy in developing analog semiconductors for 5G and other uses. 

10. Revisionism

In the early days of March, Thermo Fisher Scientific agreed to acquire fellow laboratory equipment maker Qiagen at a valuation of about $11.5 billion. But Qiagen's share price has drifted upward during the pandemic, prompting Thermo Fisher to submit a revised offer this week that tacks another $1 billion or so onto the purchase price. Advent International and cybersecurity specialist Forescout Technologies also amended a prior deal this week, with Advent reducing its offer from $1.9 billion to about $1.4 billion after previously trying to walk away from the takeover.

11. In the clouds

Cloud kitchens are the business of Karma Kitchen, a London-based startup that raised £252 million (about $317 million) for a Series A this week. That's a bit of an increase from the £3 million the company sought initially, according to reports. Physical clouds, meanwhile, are more the concern of Skydio, an autonomous drone startup that banked $100 million this week for its Series C. 

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