Filled with innovation labs, co-working spaces and students, Boston has a ton of entrepreneurial characteristics baked into its DNA.
However, when the coronavirus swept through the country, the area’s startup scene was stress-tested as badly as other entrepreneurial hubs. Could Boston’s startups still thrive without the city’s robust in-person ecosystems?
Last month, we answered this question broadly: Boston-area startups raised $3.7 billion in Q2, according to CB insights, a figure we hailed as “record venture capital investment in the period.”
But while high-level, quarterly data is useful directionally, it can gloss over illustrative dips and peaks. In 2020, things changed fast.
So, for this month’s Boston-focused column, we looked at the city’s venture capital data on a month-by-month basis to answer the question, “How did the pandemic impact deal-making in the city?”
New PitchBook data show that Boston-area startups saw a venture capital dip after March through April, two early pandemic months here in the United States. However, May and the following months more than made up for the decline. In fact, Boston-area startups raised more private capital during summer 2020 than they did in summer 2019, suggesting that the pandemic and its ensuing technological and economic changes have not hurt the area startups in aggregate, but instead provided a net boon.
Inside Boston’s turbulent venture capital summer
Let’s start with a look at the data in chart form. We asked PitchBook for a look at Boston’s venture results on a monthly basis since 2019.
Looking at private capital data for Boston-based companies, we see that December was a very strong month compared to the rest of Q4 2019, but that it was also easily bested by January. February and March were more quiet, leading us into the pandemic era. But surprisingly, April wasn’t a complete mess with more than $1 billion in funds invested. May posted a sharp improvement in dollar terms, and June was best of all months in the year so far.
Heading into Q3 2020, July was nearly as good as June, and the third-best month in terms of dollars invested into Boston-based companies since the start of 2019. Sure, August looks pretty slim there at the end, but that’s a column featuring very partial data. It will get better.
When we first worked on answering our question of what happened more incrementally in 2020 for Boston, we expected a sharper dip during the early pandemic and a faster rebound on the other side. That thinking stemmed from the amount of fear we heard early in the COVID era and the optimism that came later.
Instead, what we see is very little decline in sequential terms and a rapid push back to record highs. Boston, it seems, was super resilient in the face of the pandemic.
How did that happen?
What gives? Why the growth in dollars invested, on a year-over-year basis for Boston-based companies in so many months of 2020? We have a few ideas.
First, venture capitalists who may have once only invested in their backyard are now open to remote deals (because well, everything is remote now). This could mean Boston-based founders now have more options for venture capital funding, helping them find alternative capital sources during a local downturn.
Or it could be that Boston’s startup ecosystem has a good number of SaaS and cloud companies, the very sort of startup that has often seen acceleration during COVID-19. Pandemic-accelerated SaaS startups are enjoying a wave of investment in recent months, a trend that perhaps strengthened Boston’s own ecosystem.
Some of the initial fear was reflected in our early-summer Boston VC survey, which wound up being a bit too pessimistic. So to better understand the dataset and to give us a better lens into how Boston has performed this year, we asked a local VC for their take on the situation.
Richard Dulude, co-founder and partner at Underscore, says the data mirrors his firm’s experience. In Q2, Underscore VC had its busiest quarter in the history of its fund, in terms of number of checks and size of those checks.
Dulude noted a number of potential factors for the uptick, some in line with our thinking about it.
“Zoom nullifies boundaries and even time zones,” he said. Underscore, for example, usually invests in Boston-based early stage startups but recently participated in an unlikely financing: San Francisco-based Coda’s Series C round.
Secondly, he said startups might be raising more to prepare for future uncertainty.
“Both founders and investors want longer cash runways than usual to insulate from the uncertainty,” he said. “We’ve seen well-funded companies take on incremental capital between rounds.”
Boston is something of a mirror of national trends in this case. It was broadly anticipated during the early weeks and perhaps months of lockdown in the United States that a startup downturn was coming, and quickly. Instead, some startup sectors saw their fortunes turn, while more startups than not seemed to come alive as the world fractured. The same appears true in Boston’s local ecosystem.
That’s good news for the city and its upstart tech companies.
13 Boston-focused venture capitalists talk green shoots and startup recovery
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