While some United States investors may have been reassured by China’s rebound, we are still in the early innings of this period of uncertainty.
Some epidemiologists have estimated that COVID-19 cases will peak in April, but PitchBook reports that transactions fell -26% in March, compared to February’s weekly average. The decline is expected to continue in the coming weeks – many deals that closed last month were initiated before the pandemic, and there is a lag between when deals close and when they are announced.
However, there is still hope. A recent report concluded that as valuations are lower and there is less competition for deals, “the best performing vintages tend to be those investing at the bottom of a downturn and early in the recovery”. There are countless examples of the 2008 recession, including many highly regarded venture backed companies such as WhatsApp, Venmo, Groupon, Uber, Slack, and Square. Other early-stage VCs seem to have come to a similar conclusion.
Moreover, early-stage investing appears more resilient. During the last recession, angel and seed investor activity increased 34% as interest in the scene skyrocketed during a prolonged period of growth.
Moreover, there is still capital to be deployed in categories that investors were interested in before the pandemic, which could establish the new order in a post-COVID-19 world. According to data provider Preqin Ltd., VC dry powder grew for a seventh consecutive year to around $276 billion in 2019, with another $21 billion raised in the last quarter. And looking at the early-stage deals that have closed since the start of the year, particularly in March, the vertical categories that garnered the most funding were enterprise SaaS, fintech, life sciences, health informatics, edtech and cybersecurity.
That said, if VCs have the capital to deploy and are able to overcome the hurdle of “never having met in person,” here are six investment trends that could emerge once the pandemic is over.