COVID-19 Couldn’t Stop Venture Capital Deal-Making in North America

Total deal value emerged from a turbulent 2020 at a record high, with the deals profile relatively unchanged

In a year in which markets were characterized by their dramatic ups and downs, North American venture capital deal value held up – and then some. As Fig. 1 shows, total deal value reached $182bn by 2020’s end, up 29% from 2019, with an annual average growth rate of 14% since 2016. However, while total deal value increased compared with 2019, the number of transactions declined. About 6,564 venture capital deals were completed in North America during 2020, down 5% from 2019, and down further from 2014’s peak of nearly 9,000 deals.

The early part of the year played out as expected; venture capitalists shied away from the riskier ends of the deal spectrum as the initial uncertainty of the COVID-19 pandemic took hold. Preqin data shows there were fewer deals in the earlier seed and angel stages, with a shallower decline in later-stage capital injections. Skewing the early-year data was a $2.25bn seed investment on March 2 in Waymo, Google’s self-driving car venture, by a consortium of investors. 

The pause in early-stage venture capital investment didn’t last long, however, as fund managers acclimatized to life in a pandemic and deal activity rebounded during the second half of the year along with the broader economy. Indeed, Fig. 2 shows that, by the end of 2020, the distribution of total venture funding by deal stage wasn’t notably different from previous years. One would expect a bit of pull-back in funding at riskier earlier stages and greater concentration at the more mature stages; but this expectation may be short-sighted in the context of the typical seven- to 10-year venture capital relationship. It’s assumed that portfolio companies will need to deal with economic downturns over these cycles, regardless of the cause.

A deeper look into the data shows that a sizable portion of North American venture funding went to the more ‘pandemic-friendly’ sectors. Biotechnology companies, for example, attracted $23bn in funding last year, up 74% on 2019 (Fig. 3). 

Some of the more forward-looking industries also received significant shares of capital. As in the two years prior, software companies attracted the most venture capital last year, at $51bn, primarily because of the sector’s diversified nature. The largest deal in North America was Volkswagen’s $1.6bn cash injection for self-driving tech company Argo AI. Self-driving cars, and the software underneath the hood, are a ‘holy grail’ technology that has been sought after long before COVID-19. 

Other large-ticket deals in 2020 also related to self-driving cars, as well as secure payment processing and online gaming. On the surface, these deals may seem a response to the challenges that COVID has created, but in reality they’re building on pre-pandemic trends, which will continue long after the virus is under control. An early look at Preqin’s 2021 data shows a building trend of large venture capital investments in automated cars, fintech, and e-commerce. Conveniently, these are industries that don’t rely on – and, indeed, can excel without – human contact.