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The Weekend Pitch |
July 19, 2020 
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Venture capitalists and other investors spent the entirety of the past decade making bets during the longest bull market in US history. There were of course various dips and blips. But on the whole, most graphs tracking VC dealmaking, valuations, exit values and fundraising during the 2010s traversed a steady path up and to the right.
Then the pandemic arrived. The orderliness of the past 10 years devolved into chaos. And many investors have responded by devoting their time and dollars to those few opportunities where they can still expect some degree of certainty.
Welcome to The Weekend Pitch. I'm Kevin Dowd, and you can reach me at weekend@pitchbook.com. Mega-rounds and mega-funds have been the name of the game in recent months, with VCs and LPs pumping an increasing percentage of their cash into established names. That's one of 11 things you need to know from the past week: |
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In 2020, VCs are navigating a new kind of market.
(Colin Anderson Productions/Getty Images) |
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1. A bird in the hand
This week brought the release of the Q2 2020 PitchBook-NVCA Venture Monitor, our quarterly publication breaking down boatloads of new data from the US venture scene. For me, many of the most interesting notes and angles are related to investors hunting for the familiar at a time when so much of the future is shrouded in uncertainty.
On the dealmaking front, late-stage investments outpaced early-stage rounds in Q2 for the first time in at least five years. Relatedly, the VC industry is on pace for a record number of mega-deals, while first-time fundings are tracking for their lowest annual total in 10 years. Together, these trends illustrate how firms have been eager to pad the balance sheets of current portfolio companies that may be most likely to achieve a successful exit while being reluctant to make new, riskier investments, particularly when in-person meetings with new founders are more difficult than ever.
Some of these new mega-rounds were for companies trying to take advantage of the present moment, such as Instacart and DoorDash, both of which have seen demand swell during the pandemic. Other big funding deals were done by companies in struggling sectors, like vacation rental startups Vacasa and Sonder. The common thread is that they are known quantities—relatively mature companies that could provide a windfall to their backers sooner rather than later.
The prospect of such a windfall is likely made all the more attractive by a dearth of exits in Q2. Most of the VC-backed IPOs that have occurred have met a boffo reception on Wall Street, but overall exit count is on pace for its lowest annual total since 2011, a stark contrast to last year's unprecedented push of unicorn IPOs.
Known quantities also continue to dominate the venture fundraising scene. Firms have closed 24 different mega-funds of $500 million or more so far this year, nearly equaling last year's total, while the frequency of first-time funds is on pace for a seven-year low. That's a sign that LPs are opting to commit their capital to established managers with track records of success rather than the many upstarts that made a splash the past few years. Led by major efforts from firms such as General Catalyst, Lightspeed and DCM, the median and average VC fund sizes have both more than doubled compared to 2019.
The result has been a surprising fundraising boom amid an otherwise turbulent market. Firms closed $42.7 billion worth of venture vehicles in the first half of 2020, by itself a higher sum than all but three of the past 15 full years.
Another potential result of the retreat by investors into their existing networks and comfort zones could be some unfortunate stats related to female founders, who are already swimming upstream in an industry that often resembles an old boys' club.
The proportion of deals going to companies founded by women is declining in 2020, and overall deal activity for female-founded startups is on pace to fall after three straight annual increases. The median pre-money valuation for startups founded solely by women is at $12 million this year, compared to $33.4 million for companies founded solely by men. After several years of positive momentum—and in a time when diversity is top of mind for many firms and companies—it's disheartening to see this divide continue to widen.
I could go on about other thoughts and takeaways from the report, including resilience among nontraditional investors, the divergence of angel and seed deals, and an ongoing biotech boom. But the best way to make sure you don't miss anything is to read the report yourself.
2. SPAC attack
Another trend coinciding with the pandemic—the increasing popularity of special-purpose acquisition companies—continued to play out this week. MultiPlan, a private equity-backed healthcare payments specialist, agreed to conduct an $11 billion reverse merger with a SPAC. Electric vehicle maker Fisker agreed to a $2.9 billion SPAC deal of its own. And Pershing Square Tontine Holdings, a massive new SPAC backed by hedge fund star Bill Ackman, increased the size of its upcoming IPO, with new plans to raise as much as $4 billion.
3. Good timing
Robinhood took advantage of a recent boom in business by adding an additional $320 million onto a $280 million round it originally raised in May. DoorDash, another pandemic darling, revealed a new partnership with Walgreens to deliver over-the-counter medicines and other products. And India's Jio continued to strike while the iron is hot, agreeing to raise $4.5 billion from Google on top of other recent massive investments from Facebook, KKR and more.
4. Pop culture
The aforementioned success of the VC-backed IPOs that are taking place in 2020 continued this week. Fintech startup nCino priced its offering at $31 per share, above its expected range, and nearly tripled to close its first day at $91.59. SoftBank-backed drug developer Relay Therapeutics also priced its IPO above its expected range and then saw its shares climb more than 75% in their public debut.
5. Star shopping
Darryl McDaniels, best known as the latter half of Run-DMC, dipped his toe into venture capital this week with an investment in a company that hits close to home for the former rapper: Uwill, which operates a behavioral health platform for college students. Fellow celebrities Oprah Winfrey, Natalie Portman, Jay-Z and Howard Schultz were all also in the news, taking part in a $200 million growth investment in oat milk brand Oatly that was led by Blackstone. |
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Oprah Winfrey is searching for deals in Silicon Valley.
(Steve Jennings/Getty Images) |
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6. Newspaper news
The hedge fund industry continued its worrisome takeover of American newspapers this week, as Chatham Asset Management won an auction to acquire McClatchy, a 163-year-old chain that now controls many of the best-known regional papers in the US. To date, Chatham and founder Anthony Melchiorre are probably most famous for owning the controversial National Enquirer tabloid.
7. The U crew
Business automation specialist UiPath announced $225 million in new funding this week at a $10.2 billion valuation. Reports emerged that Uber Freight could soon raise $500 million in funding that would value the standalone Uber subsidiary at some $4 billion. And another startup whose name begins with the 21st letter, Udemy, is reportedly seeking new capital that could value the edtech specialist at $3 billion.
8. Other edtech events
Udemy isn't alone. In India, a fellow edtech startup called Vedantu—which seemingly takes its name from the Sanskrit words for "knowledge" (veda) and "network" (tantu)—raised $100 million for its online tutoring platform. CampusLogic scored $120 million in a new minority funding from Dragoneer Investment. And Coursera is raising $130 million at a new $2.5 billion valuation, according to The Information.
9. Chip leaders
US-based semiconductor powerhouses Analog Devices and Maxim Integrated lined up a major merger this week, with Analog agreeing to pay more than $20 billion in stock to take over its rival. The deal is expected to create a combined company with an initial market cap of more than $68 billion, and one that could challenge Texas Instruments for primacy in developing analog semiconductors for 5G and other uses.
10. Revisionism
In the early days of March, Thermo Fisher Scientific agreed to acquire fellow laboratory equipment maker Qiagen at a valuation of about $11.5 billion. But Qiagen's share price has drifted upward during the pandemic, prompting Thermo Fisher to submit a revised offer this week that tacks another $1 billion or so onto the purchase price. Advent International and cybersecurity specialist Forescout Technologies also amended a prior deal this week, with Advent reducing its offer from $1.9 billion to about $1.4 billion after previously trying to walk away from the takeover.
11. In the clouds
Cloud kitchens are the business of Karma Kitchen, a London-based startup that raised £252 million (about $317 million) for a Series A this week. That's a bit of an increase from the £3 million the company sought initially, according to reports. Physical clouds, meanwhile, are more the concern of Skydio, an autonomous drone startup that banked $100 million this week for its Series C.
View the full list online |
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| (Ada Yokota/Getty Images) |
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StartOut is a nonprofit aiming to boost LGBTQ entrepreneurs in a venture capital industry that isn't exactly known for its diversity. In trying to promote its ideas to investors, though, the group kept running into a problem: Data on the impact of LGBTQ founders was difficult to find.
So, as James Thorne wrote this week, StartOut took matters into its own hands, working with Socos Labs to create a new index that helps demonstrate why firms should broaden their investing horizons.
Desire for other kinds of diversity data is also growing. Priyamvada Mathur examined how, for the millions of Americans now hunting for work, information on diversity at potential employers could be more important than ever before. |
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| Sportswriters practice social distancing at a soccer match in the UK. (Nathan Stirk/Getty Images) |
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Sports Illustrated is perhaps the most iconic brand in the history of American sports media, functioning for decades as an undisputed kingmaker. The Athletic, meanwhile, might be the next big thing, having in recent years deployed its piles of venture backing to compile an impressive roster of writing talent.
The two companies have very different histories. They also have very different business models. But as Adam Lewis writes, when the pandemic arrived and sports went into an unexpected hibernation, both SI and The Athletic found themselves in a whole new world. |
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As recent years have gone by, impact and ESG strategies have continued to occupy a larger and larger place in the private markets. Every firm, though, seems to take a slightly different tack in how these factors are assessed.
In a bid to better map the impact space, PitchBook is surveying investors and other private market participants on their approaches to sustainable investing. If you're interested in adding your voice to the equation, you can take the survey now. |
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| (alexey_ds/Getty Images) |
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Dwindling bee populations pose a real threat to the global food chain, potentially depriving many key crops of the pollination they need to thrive. A startup called Beewise thinks it can help, raising a reported $10 million this week to back the idea that the future of beekeeping may be powered by AI.
The company's main product, called a Beehome, is effectively a solar-powered shed packed with software and hardware that can house, monitor, and treat as many as 40 bee colonies at a time, allowing beekeepers to take care of their wards without being covered from head to toe in stinging insects. Perhaps at some point, Beewise will have reason to collaborate with Beekeeper, a Swiss startup making workforce communication software that raised $10 million of its own this week. |
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Recommended reads
A profile of Steven Mnuchin, the banker turned treasury secretary who's been tasked with guiding America's economic recovery. [The New Yorker]
Clubhouse pitches itself as a different kind of social media platform. Will that change as its user base begins to grow? [The Wall Street Journal]
Rare parrots are a beautiful, integral part of life in Dominica. They can also fetch a pretty penny. Which of those two facts is driving a German man named Martin Gerhard Guth? [Audubon]
The threat of tens of millions of looming evictions could turn this recession into a bigger US housing crisis than 2008. [Intelligencer]
The Paycheck Protection Program was meant for small businesses. But several much larger businesses also found a way to get a slice of the pie. [ProPublica]
An ode to the road trip at a time when leaving home is more fraught than ever before. [Outside]
In the midst of a pandemic, Netflix is rewriting the script for Hollywood's summer blockbuster season. [Bloomberg]
Today, Ross McLellan is less than two weeks into an 18-month sentence in federal prison. The story of how the former bank executive got there is anything but simple. [Institutional Investor]
Whether it's writing a will or sending one final tweet, the pandemic has created a boom for businesses focused on planning for the end. [The New York Times] |
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Quote of the week
"Bad guys don't like to come around when there are a lot of floodlights and cameras."
—Earl Devaney, a former federal inspector general, describing the power of transparency in a Daily Beast article about private equity portfolio companies accessing loans from the Paycheck Protection Program |
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The Weekend Pitch is produced by editor Kevin Dowd.
Were you forwarded this newsletter? Sign up at pitchbook.com/subscribe. |
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