Venture capital (VC) activity showed more money being invested in fewer deals during the first quarter (Q1), continuing a trend seen in recent quarters. Overall deal count slowed 18%, while aggregate deal volume increased 10% from the fourth quarter to $34 billion. With the onset of the coronavirus impacting markets and the economy in the latter half of Q1, VC activity is expected to show further slowing in the second quarter.
Preliminary data on investments by stage (page 4) shows that later-stage investments are maintaining a relatively healthy pace. Angel and seed investments, however, appear to have slowed.
Decreased M&A and IPO volume in Q1 meant fewer exits for VC firms, with first quarter exits falling to the lowest level since 2011. Significant levels of fundraising in 2018 ($62 billion) and 2019 ($51 billion), plus a very healthy $21 billion raised in Q1, has generated large reserves of dry powder. Some of this is expected to be used to support existing portfolio companies, given the longer holding periods, but a significant amount will remain for new investments in startups and growth-stage companies that VCs believe will excel post-coronavirus.
In the Midwest, which has historically seen volatile results from month to month, deal activity totaled $183 million across 33 deals. Healthcare and IT companies captured the most attention in the Midwest, representing 39% and 27%, respectively, of deals completed during the quarter.
Though the environment for deal-making appears to be less favorable under this economic uncertainty, there is still substantial interest in strong companies in defensible industries and those that can capitalize upon the fundamental shifts that occur in a post-coronavirus world.
A copy of the full report is available here.