Venture Deals Decline in Q1, Biotech Sizzles Again

Click on image for full-size view (PwC and CB Insights)

17 Apr. 2020. The number of venture deals declined for the third straight quarter as 2020 opened, but biotechnology remained the hottest single sector for investors. Those are among the highlights of the latest Moneytree Report (registration required), published this week by accounting-consulting firm PwC and technology intelligence company CB Insights.

In the U.S., the number of venture deals dropped to 1,271 for the period of January to March 2020, the third straight quarterly decline, underscoring a trend going back to second quarter of 2018, which recorded 1,774 deals, a number not since duplicated. However, the total volume of venture investments rose modestly to $26.4 billion in the U.S., from $23.3 billion in the fourth quarter of 2019.

The reduction in venture deals is being most felt by the newest start-ups, while high dollar volume deals continue to attract investors. The number of seed-round deals dropped sharply in the first quarter, to 267, the lowest number since 2015. All of the later round deal numbers remained relatively stable. The median seed-round deal size was $2.4 million during the first quarter. Late-stage companies, those raising their fourth and fifth venture rounds, attracted a median investment of $42.5 and $51 million respectively.

Venture investors were also ready to make larger deals in the first quarter of 2020. So-called mega-rounds, raising $100 million or more at one time, accounted for nearly half (45%) of all deals, and investment dollars — $12 billion of $26.4 billion total — in the quarter. In the fourth quarter of 2019, mega-rounds comprised about a third (32%) of venture deals and dollars.

Among broad industry sectors, Internet start-ups attracted the largest number of deals with 547, or 43 percent of the 1,271 total, particularly companies offering software as a service, such as in accounting or security. Nonetheless, biotechnology companies remained the single most attractive fine-industry sector for venture investors, both in terms of number of deals and investment dollar volumes. The same pattern for biotechnology start-ups occurred in the third and fourth quarters of 2019, as reported in Science & Enterprise.

Worldwide, the number of deals declined in all three major regions: Asia, North America, and Europe. Asia experienced the sharpest decline in number of deals, from 1,499 in the last quarter of of 2019 to 1,072 in the first quarter of 2020, probably reflecting the impact of Covid-19, which struck China and surrounding countries before the rest of the world. Total investment volumes were stable or increased slightly in all three regions in the first quarter of the year.

While the Covid-19 pandemic is likely to dramatically alter these patterns in the current quarter, one highlight — or maybe lowlight — will likely continue beyond the first quarter: Electronic cigarette maker Juul Labs remains the single largest recipient of venture investing. Juul Labs in San Francisco so far received $14.6 billion from venture investors, more than four times the $3.6 billion invested in the second-place company Airbnb, also in San Francisco. In the first quarter of 2020, Juul Labs raised another $700 million, from undisclosed investors.

More from Science & Enterprise:

• Infographic – Biotech Index Dives, Rebounds
• Life Science Venture Funds Raise $2.56B for Start-Ups
• Venture Fund to Back Covid-19 Start-Ups
• Institutional Investors Factoring in Climate Change
• Women Founders Again Raise Small Share of Venture Funds

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