Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
Today we’re unpacking some new data concerning what happened to Silicon Valley’s venture capital market in Q1, with a special focus on private financings towards the end of the three-month period. If the deterioration in deal volume we’ll go over today persists into Q2, the United States’ largest startup market could be in for more than a bump as the global pandemic slows economic activity.
We’ve already talked to venture capitalists who invest in fintech, social companies, consumer startups, and other niches to understand the present state of the venture capital market. We’re also looking through data on the global and domestic venture scene, digging into local data on Boston and Utah. Other cities and states will be examined in the coming weeks.
Fluid situations demand lots of attention.
However, up until March of 2020, the venture capital and startup market had one speed (fast) and one goal (growth). The new normal of the COVID-19 era is different, and with the help of some excellent data from Fenwick and West, a legal firm that works with technology companies, let’s dig into how Silicon Valley’s venture scene nosedived as Q1 came to a close.
January, February, Ouch
The venture capital scene in Silicon Valley got off to a hot start in 2020. Fenwick’s collected data indicates that there were 126 financings in the region in January of this year — up more than 100% from the preceding year’s January tally of 60.
In February of 2020, the financing tally fell to 60, a result that came in under the preceding year’s February result of 64. That’s a wash.
In March, however, venture activity got super sticky. According to the report, just 44 financings were put together in March 2020, a material percentage under the 61 that March 2019 saw. The 2020 results are a bit starker when listed in chronological order, month-over-month:
- Silicon Valley financings, January 2020: 126
- Silicon Valley financings, February 2020: 60 (-52.4% from January)
- Silicon Valley financings, March 2020: 44 (-26.7% from February)
January 2020 was an outstanding month, Fenwick notes, saying that it saw the “the largest number of venture financings in a single month in at least five years.” The firm posits that some financings in the month could have been driven by economic worry (get that round done now), which makes good sense; there’s been some discomfort in Silicon Valley in the last few quarters about raising before the music ended.
Whatever the reason, 2020 went from scalding hot to slow in under a quarter.
March 2020’s series-level results are worth considering. In the month, compared to the year-ago period, Series A rounds were down 30%, Series B rounds fell a more modest 7%, Series C rounds dropped 45.5%, while Series D and E rounds fell 57.1% and 11.1%, respectively.
Falling prices
In honor of our new hunt for green shoots amidst the bad news, TechCrunch dug through the rest of the tables in the report, hoping to find some good news. There’s not much.
On one hand, “up” rounds in Silicon Valley as a percent of the total only fell 2% in the quarter, from 81% in Q1 2019 to 79% in Q1 2020. But in each month of Q1 2020, the result was under its year-ago total, and the March 2020 data point had the lowest ratio of up rounds of any of the months detailed.
The only truly positive stat from the report itself comes with a stern caveat. In Q1 2020, the average price increase for Silicon Valley financings was 94%. That result was better than the Q1 2019 tally of 75%. However, January 2020 carried much of the weight for 2020, with its 117% average price gain falling to 46% by March. And both February and March 2020 saw average price gains that were less than their year-ago corresponding periods.
Not a lot of comfort there, then.
What this report does is take what our gut said happened and confirm our expectations with numbers. Alas.