Venture funds are raising more than ever in 2020, and spending at a pretty good clip, too.
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That’s a contrast from the financial crisis of 2008, when fundraising to venture firms slowed down significantly. At the time, raising a new fund seemed quaint, and new investment in startups slowed considerably as well.
But so far this year, we have seen many firms raise billions of dollars across multiple funds. Lightspeed Venture Partners raised $4 billion across 3 funds, and NEA closed on its largest fund to date at $3.6 billion. Several others closed funds of $2 billion or more. The pace of investment, meanwhile, remains brisk.
Because many of the most prominent venture firms are raising record funds despite a historic downturn, the framing of a global recession this time around is very different. Technology is broadly seen as a way to manage and exit this crisis, with many tech companies experiencing growth through the shift to remote work and online learning. Helping drive the growth are companies that need to move online and are looking for technology providers to ease the way.
Funding in 2020
For this article we look at 18 multistage funds that have been the most active investors this year.
The data for this article is based on reported rounds in Crunchbase from news sources, as well as our venture partners. Some rounds won’t be accounted for here, as they are in stealth and not yet announced. Some fundings, if not reported directly to us or in the news cycle this year, might be missing from Crunchbase. With those caveats, let’s dive into the data.
From our research, the most active large venture fund this year to date is Accel. The company has invested in 22 new portfolio companies since the beginning of the year, in addition to 45 portfolio companies in follow-on funding rounds.
We spoke with Accel Partner Steve Loughlin, who invests in AI, collaboration and SaaS companies. Back in March, when Accel did the COVID replan with its portfolio companies, Accel told them to assume no cash for 18 to 24 months. “Everyone took a very conservative view that, assume you’re not going to be able to raise more money, and assume you’re not gonna be able to grow,” Loughlin said.
But what actually happened was very different.
“A large number of companies have seen their businesses accelerate in enterprise software collaboration cloud, because companies are finding these emerging tools necessary to run their companies in this new way,” said Loughlin.
Accel has the highest count of follow-on rounds while Qiming Venture Partners has the highest percentage of follow-on funding relative to new rounds. “The reason you are seeing follow-on rounds is that companies did see growth, which got Series B, C and D investors excited,” Loughlin said. Accel has led five of their own follow-ons for Series B or later investments, according to our data.
New portfolio investments
For the majority of these multistage venture firms, investment counts in existing portfolio companies are greater than new investments. However, the percentage point difference is not large. For this group of 18 firms from around the globe, 53 percent of the investments have been in follow-on rounds–meaning that 47 percent are investments in new portfolio companies. New investments represent optimism for the future of these companies.
Early-stage rounds dominate
Across this set of investors, the majority of fundings are at the earlier stage, with seed at 20 percent, Series A at 27 percent, and Series B rounds at 21 percent of fundings. Series C+ rounds represent one-third of funding rounds.
Through the crisis we have seen late-stage become a larger percent of funding. In the first half of 2020, late-stage and technology-growth rounds accounted for 66 percent of funding, up from 59 percent in the first half of 2019.
Despite the very large funds raised, these multistage funds are still focused on their core of finding great companies to invest in at the earlier stages.
2020 average and medians are up
An even louder signal that startups are seeing growth in this unique period: Average and median fundings for these 18 investor firms is up year over year at seed through Series C.
For these same firms in 2008—minus GV and Andreessen Horowitz, which were founded in 2008 and 2009, respectively—new funding counts were down by a third in 2009 compared with 2008. In 2009, median and averages were either flat or up for Seed and Series A for these firms, but down for Series B and Series C year over year.
Picking up the pace
Loughlin acknowledges that because everyone is home, it’s easier to get the team together in front of the company earlier to more efficiently form an opinion around the category and the problem the entrepreneur is solving.
Firms investing at an even greater pace than the first seven months of 2019 include General Catalyst, Greycroft and Andreessen Horowitz in that order.
Cloud technology and smartphones have been at the forefront of innovation and leveling the playing field over the last decade. AWS launched in 2006; the App Store and Google’s equivalent, Google Play, both launched in 2008. As we have noted, the venture and tech industry have changed quite dramatically since 2008—expanding more than sixfold—and technology has become more integrated in our daily lives. With the pandemic, this is more obvious to all.
Illustration: Li-Anne Dias