VC activity goes upside down as seed deals fall and mega-rounds rise

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Earlier today, PwC and CB Insights dropped a sheaf of data concerning the global and domestic Q1 venture capital market, something we’ll be yanking data points from here and there for a few days. What matters is that our continuing hunt to understand what’s going on with VC and its investment habits (some of our recent work here and here) can take another step forward today.

We’re talking about three trends this morning: The sharp decline in Q1 U.S. seed rounds, how mega-rounds ($100 million and larger funding events) are holding up the sky for domestic venture totals, and what March might tell us about what’s going on with COVID-19 and VC activity today.

Ready? This is going to be quick and easy and fun.

So much for Seed

According to the report, domestic Seed rounds, in slow decline since peaks in 2017, have sharply fallen since Q3 2019.

Indeed, they fell from around 500 to just 267 in Q1 2020. It’s difficult to calculate a precise decline from the charts, but it appears that Seed rounds are off around 50% since the third quarter of last year.

That is a precipitous decline, but not one that can be entirely blamed on COVID-19; the fall in U.S. Seed funding was afoot in Q4 2019, well before the public was discussing the coronavirus or lockdowns. It’s fine to say that there is likely some March-era declines in Seed funding due to COVID-19 (more on that in a minute), but the pandemic is, at most, partially responsible.

The recent decline in Seed funding is so steep it has inverted venture’s equivalent of the yield curve: There were more domestic Series A deals than Seed deals in Q1 2020, with the later-stage investments winning out with 331 deals in total.

There’s a graduation rate between each venture stage; some Seed companies make it to Series A, while only some Series A companies make it to Series B, and so forth. You’d always expect, then, that there would be more rounds in a preceding venture stage than the one that comes next. To see more Series A rounds than Seed deals is therefore wild.

(What up with that? Seed investors get at me and let me know.)


After dropping to 32% of domestic venture capital dollars invested in Q4 2019, mega-rounds, private investments of $100 million or more, saw their share rise to 45% in Q1 2020. This was more a return to form than shocking gain, but following our notes about Series A rounds besting Seed rounds in volume terms the figure stuck out.

Averaging out 2019’s quarterly results for mega-round percentage of dollars invested we get a number slightly under 45%. So 2020 is off to a slightly less equal start than what we saw last year; that said, I’d have expected this number to post another weak quarter after the Vision Fund’s missteps in Q3 led to a reversion in risk-tolerance at the world’s most aggressive late-stage investor. But, no, a quarter after the ratio of mega-round dollars to other domestic venture largesse slipped, we’re right back to where we were.

Are VCs moving away from riskier, early-stage investment?


The PwC-CB Insights report had two things to say about March, a month that we want to understand as it may help us better forecast what to expect in Q2 2020; if March was a mess, then Q2 is probably a disaster. However, instead of being a rout, March was merely bad: “In March 2020, U.S. deals decreased 22% YoY, with some of the decline likely attributable to the earlier COVID-19 pandemic,” the report said.

Total deal volume for the U.S. fell 16% in Q1 2020 when compared to its year-ago period. So, a 22% decline in March is worse, yes, but not catastrophically so. However, after noting that 21 out of 58 US mega-rounds were announced in March, the report said somewhat dryly that “COVID19’s impact may become more apparent in Q2’20.”

Yes. But we are seeing March as worse than other months (the mega-round number aside) in the quarter, implying deterioration. And with deal volume already off compared to Q1 2019 and 8% from Q4 2019 as well, things look predictably bad for the venture market as the U.S. economy slides off the decks and into the soup.

More to come, we’re parsing the charts and riffing on our own data work to learn more.