Late-stage deals made Q3 2020 a standout VC quarter for US-based startups

Image Credits: Nigel Sussman

Remember back in March when the VC game was done for the year, checkbooks were snapping shut and startup layoffs led the headlines? So much for all that. Q3’s venture capital numbers are in and they are anything but weak.

In retrospect, the Q2 VC slowdown looks more like a short-lived recharge ahead of a big push in Q3 than anything existential. We can see this today through the lens of data concerning what happened after June concluded and we moved into Q3.

According to data from PitchBook (data source) and CBInsights (data source), there was a lot to like about the third quarter if you were a U.S.-based startup.

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I want to dig into the data and pull out most important data points for you. We’ll get you informed and out the door in around 900 words.

If you want a more global look at the venture capital world in Q3, don’t worry. We’re doing that tomorrow right here at The Exchange. Ready? This should be both fun and informative. Let’s go!

A massive third quarter

To get a clear look at the U.S. venture capital market, we’ll start from the top down. So, the biggest numbers first, followed by increasingly narrow slices of data so we can drill down into smaller startups.

First, the top-line numbers:

• How much money was raised by U.S.-based startups in Q3 2020? $36.5 billion, according to CBInsights, $37.8 billion according to PitchBook. Those numbers are effectively the same for purposes. CBInsights calls the number a seven-quarter high, up 22% from the Q3 2019 number and 30% from the Q2 2020 result. PitchBook agrees that Q3 2020 was strong, but has its count just under Q2 2020’s own.
• How many deals was that money spread between? CBInsights counts 1,461 VC deals in Q3 2020 for U.S.-based startups. Per its numbers, that figure is up 1% from Q2 2020 and down 11% from Q3 2019. PitchBook, in contrast, counts 2,990 total deals, inclusive of rounds that it expects to be added as information about the quarter fills in. That tally “held steady” compared to Q3 2019, per the company.

What to make of all this information? Simple: Q3 2020 U.S.-based startup venture capital dollar volume was very strong, with deal counts coming in slightly weaker.

This means that we saw fewer, larger deals in the quarter on average, right? Let’s see:

• How did megarounds fare in Q3? Very well, our two sources agree. According to CBInsights, 88 megarounds (an investment worth $100 million or more) were made into U.S.-based companies in the quarter. That beat the Q2 2020 record, per the same dataset. PitchBook had similarly positive data on these rounds, saying that 223 deals worth $100 million have been executed into U.S.-based startups this year, “on pace to set a new record for VC megadeal count” with 92 in Q3, per our calculation based on the numbers reported in its Q2 2020 and its most recent report.

That’s around one $100 million round announced per day in Q3 for U.S.-based startups. That’s a funding influx of historic proportions.

But what about merely late-stage money?

• How did late-stage rounds fare in Q3? Very well, unsurprisingly. The median pre-money valuation for late-stage startups rose to $90 million in 2020 through Q3, up from $70 million in 2019, according to PitchBook. CBInsights noted similarly strong Series E+ round sizing in Q3, with Series D median round sizes grew as well.

For late-stage startups, valuations are looking strong during a quarter of big-dollar deals. If your startup is Series C or later and growing well, it’s a great time to raise.

Let’s look at younger startups and smaller rounds:

• How did early-stage rounds fare in Q3? In comparative terms, poorly. The percentage of U.S. VC deals that were for rounds of $5 million or less was the lowest since at least 2010, according to PitchBook data, looking at 2020 through the end of Q3. Rounds of $25 to $50 million appeared to chew into the smaller rounds’ market share in the quarter. At the same time, CBInsights data shows a rebound of sorts for seed deals in Q3, after three disappointing quarters.

The two sets of data do not contradict each other. Indeed, what PitchBook data shows us is that 2020’s aggregate deal volume is drifting away from seed and other small deals. CBInsights data concerning Q3 2020 shows that those trends could be slowing, or perhaps reversing as the year continues.

So, some glimmers of hope amidst the bad news for the earliest-stages of startup life here in the United States.

Wrapping our look into the U.S., a few final data points. CBInsights counts 17 new U.S.-based unicorns in Q3 2020, the strongest number since Q3 2019. Exits did not keep up with that pace of new unicorn birth, notably, with the number of un-exited American unicorns reaching 216 in the third quarter, up two from Q2’s tally.

What limited the unicorn population from growing? A strong IPO market. PitchBook data indicates that Q3 2020 was the second best quarter for IPO activity since at least 2015, only surpassed by Q2 2019, the quarter when Uber went public.

Got all of that? It’s a slightly mixed picture, but the U.S. venture capital scene is broadly wealthy and active. It’s a good time to be a startup that needs cash to grow.

Tomorrow we’re looking a bit more into the global venture capital scene from a Q3 perspective, and Wednesday, provided nothing huge happens, we’ll dig into cloud/SaaS venture results as well. On Thursday, we should take a look at some venture debt data as well, so consider this data week here at The Exchange.