From the PitchBook article : “How will COVID-19 impact US venture”
PitchBook has just published the first note on the impact of COVID-19 on the US VC market.
1/During the last recession, angel & seed activity actually increased as interest in the stage began to boom during a period of prolonged growth.
2/ It’s become a common belief that companies formed during a recession end up being some of the most successful.
3/“How is the pullback in public markets going to affect allocations and commitment pacing to private markets?” For allocators to private funds, sell-offs in public equities reduce the overall asset pool available for investment. This phenomenon is commonly referred to as the “denominator” effect.
4/While a pullback from nontraditional investors seems likely, the extent of the overall decline is difficult to estimate. “nontraditional investors,” is a blanket term covering corporate VC, PE firms, SWFs, mutual funds and hedge funds, along with several other investor types. Each has a different profile for risk, return and liquidity, and each employs a different strategy within VC. Within this group, corporate VC may be the most important to follow.
5/In many cases, debt components have been used in addition to equity financings to provide further growth capital without diluting existing investors in VC. The proposed government bailout spending contains SBA lending legislation that will apply to many startups, though personal loan guarantees can make these facilities risky for not only the company, but also the founders staking their personal assets on success.
6/liquidity : For some historical context, only 13 VC-backed IPOs closed in 2008, and only 11 closed in 2009. We expect IPO activity in 2020 to drop drastically after eclipsing 80 listings in both 2018 and 2019.