venture capital

If venture capital was water, then sea levels continue to rise.  Yet more and more innovation-based startups across the country seemingly are being left high and dry as private venture capitalists continue to push their money into bigger, later stage deals. Investors seem increasingly set to cruise toward cashing in on the currently hot exit path of public listings. All of the key metrics in the latest Pitchbook-NVCA Venture Capital Monitor suggest many of the youngest innovation opportunities have been left out of recent VC activity, a trend that typically hurts those geographic areas receiving less VC than national averages. 

For those looking for examples of the impact state investment, university involvement and tech-based economic development can have in rural parts of the country, one can examine news from Appalachian Ohio that Stirling Ultracold reached a definitive merger agreement on March 22 to be acquired for a reported $258 million by publicly-traded BioLife Solutions. The original lead investor in Stirling Ultracold is TechGROWTH Ohio, one of Ohio Third Frontier’s regional entrepreneurial service providers. BioLife intends to keep the Stirling Ultracold brand intact and maintain existing staff in Athens, Ohio. The 160 employees in the rural Southeast Ohio county is the equivalent on a per capita basis to more than 11,000 employees in Cook County, Illinois (the county Chicago is located in).    

The U.S. House of Representatives is working through the coronavirus relief package in committee markups this week, and there are several provisions that could have a significant impact for regional innovation economies. The highest-profile of these is $10 billion for a new State Small Business Credit Initiative (SSBCI) program. Reauthorizing this program has been a top priority for SSTI's Innovation Advocacy Council, as SSBCI was one of the federal government’s only sources of funding for equity investments in the past two decades.

While venture capital (VC) deal activity by women-(co)founded and women-led companies has increased over the last 15 years by some metrics, a new report indicates that the 2020 pandemic and global recession impacted these companies more than companies founded and led by men. In the second edition of its annual All In Report, PitchBook expands on its efforts to shed light on the dynamics of women’s participation in the VC market. While participation in the VC market was impacted for companies founded and led by men and women in 2020, the report highlights the impact on women-founded and -led companies by showing recent declines in nearly every measure used in the report compared to nearly constant pre-pandemic trends in increased deal count, deal value, company valuation, and exit rates by women-founded and -led companies.

Deals raising at least $50 million grew by nearly one-quarter in 2020, driving an additional $18 billion in deal value to a new record of $156 billion invested. This data, from the PitchBook-NVCA Venture Monitor, suggests that the total venture capital market will see a slight decline in investment deals overall from 2020.[1] This slip in deal activity is driven by what is currently an 11 percent decline in seed or angel deals and a 20 percent decline in early venture capital deals.

The strength of personal relationships and social connections are the most important factors for accessing capital markets according to a recent working paper from the National Bureau of Economic Research (NBER). Theresa Kuchler, Yan Li, Lin Peng, Johannes Stroebel, and Dexin Zhou — using a novel modeling system and index of “social connectedness” — conclude that physical, geographical proximity has long served as the primary proxy for measuring how the social connections among firms and investors across geographies affect access to capital markets and investment decisions. These findings may have far reaching impacts for businesses from any region—not just those closer to investment hubs—as well as for entrepreneurial support organizations and other stakeholders seeking to strengthen their local innovation communities.

The PitchBook-NVCA Venture Monitor Q2 2020 shows that COVID-19 is having an impact on the earliest parts of the venture capital funnel. By extrapolating the first half data through the rest of 2020, initial investments are on pace for a 26 percent decline from 2019, and the fewest total deals since 2010. Continuing this same extrapolation, seed investments are on track for a 36 percent decline in 2020 from 2019 and also the lowest level in at least seven years. Meanwhile, angel investments are on track to finish the year comparably to last year, and late-stage VC investments are on pace for a stronger year than 2019.

Banking regulators recently announced new rules, effective in October, that will allow banks to invest in venture capital funds. These arrangements had been barred by the “Volcker Rule,” which was put in place after over-leveraged banks caused a global financial crisis in 2008. A statement by the National Venture Capital Association praised the change and predicted a “significant impact on entrepreneurial capital formation … particularly in emerging ecosystems.”

Earlier this week, the United Kingdom announced a £1.25 billion ($1.6 billion) initiative to support the country’s startups. One program within the initiative provides £500 million in the form of loans up to £5 million that are matched by private funders to companies that have raised at least £250,000 in the last five years. The remaining £750 million will be managed by Innovate UK and provide loans and grants to R&D-focused companies. The U.K. is not the only European country to invest in startups: France announced a plan in March to spend €4.0 billion ($4.3 billion) through a combination of refinancing, early payments on tax credits and planned investments, and guarantees, and Germany has €2.0 billion ($2.2 billion) committed to funds that continue making investments.

The PitchBook-NVCA Venture Monitor for Q1 of 2020 shows just a few signs of investment activity slowing down. The high and low ends of the VC spectrum appear particularly robust, with the number of angel (653) and mega (62) deal counts both almost exactly on track to match 2019’s figures. Seed deals (335) appear to be behind, at about 50 percent of last year’s pace — although reports of these investments often lag well behind when they occur, and early-stage VC deals (634) are also well behind the pace of the last several years. On the fundraising side, total funds closed were down from last year’s pace by about 20 percent ($21 billion into 62 funds). Q1 included only a few weeks of COVID-19’s national presence, and the next report will likely tell a much fuller story of the pandemic’s impact for equity investment.