Q3’20 Venture Capital Investment

Ante Kristo

As countries re-opened their economies, in Q3’20 both VC investors and companies have adapted to new ways of doing business.  In Europe, sectors have seen high potential despite or because of COVID-19 attracted significant investors’ attention, including transportation and logistics, health and biotech, and fintech. Most VCs have adapted to new, remote ways of doing business, and capital invested continued at a strong pace in the third quarter.

A new report from Pitchbook highlighted the venture capital investment situation in Q’3 20. The $37.8 billion invested in Q3 was relatively on par with Q3 2019, thanks largely to late-stage investments. The startup ecosystem appears to be responding admirably to the grave challenges currently facing the US. Startups and entrepreneurs look to be moving aggressively to address the major challenges of our time: climate change, healthcare, COVID-19, and more.

There is a rise in sustainable startups in CEE – changing the world towards sustainability. The CEE region continues to evolve and compete to be at the forefront of the European tech startup scene. Startups are crucial elements of fostering knowledge-intensive and sustainable growth. While some sectors have struggled during the pandemic, the adoption of many new startup technologies accelerated and underpinned investment in those spaces

Among the top sustainable companies in Europe, first on the list is Denmark’s Ørsted A/S. The company claims the top of the leaderboard in 2020. Within a decade, the company has completely transformed its business model—shifting away from the Danish Oil and Natural Gas (DONG) company into a pure-play renewable energy company.

Moving forward, we may see significant long-term changes in consumer and business behaviour that prove fundamental to the creation of new, large firms that emerge from this turbulent time.

However, not all trends in the ecosystem have been positive. The number of seed and early-stage VC investments has rapidly declined, and we have seen an even steeper reduction in the number of first financings for startups, which reached a 10-year low in Q3. Ecosystem concerns also include worries over a retraction on gender-diversity progress given decreased investment into female-founded startups in Q3, and in 2020 overall. We’ve seen the number of women in venture capital firms with two or more female partners doubled last year to 14%.

Source: Chart from Sifted

Trends to watch for in Europe

As Europe continues to adjust to a new reality, VC investors in Europe are expected to remain highly focused on areas such as health and biotech, fintech, and the future of work. In fact, 2020 is the largest funding year ever for digital health. The $4.0B invested in US-based digital health startups through Q3 brings the year’s running total to $9.4B. Notably, 19 of the 25 largest early-stage VC deals in Q3 were in healthcare.

Pharma and biotech startups also accounted for four out of the five largest exits in the third quarter of the year, representing a combined value of €5.3bn. That’s on track to beat the annual exit values from software startups for the second consecutive year, according to the report from Pitchbook.

GDP levels in the euro area and EU

The COVID-19 pandemic also had a strong impact on GDP levels. Based on seasonally adjusted figures, GDP
volumes were significantly lower than the highest levels of the fourth quarter of 2019, according to data from the EU Commission.

The number of employed persons decreased by 2.9% in the euro area and by 2.7% in the EU in the second
a quarter of 2020, compared with the previous quarter.

These were the sharpest declines observed since the time series started in 1995. In the first quarter of 2020, employment had decreased by 0.3% in the euro area and by 0.2% in the EU.

Venture Capital Investment Q3

Global venture capital investment continued to be very strong in Q3’20, opposing concerns of a potential drop-off in investment due to the challenges associated with getting deals completed during a pandemic. While the number of VC deals dropped for a sixth straight quarter, the level of investment remained high, as VC investors continued to focus on late-stage companies. Three $1 billion+ mega-deals helped to propel the global investment total in Q3’20, including raises by WM Motor in China, SpaceX in the US, and Flipkart in India. The US accounted for the largest amount of VC investment globally during Q3’20 at $37.8 billion raised, although both Asia and Europe also saw increases compared to the previous quarter.

Following a record high in Q2’20, Europe continued to see robust VC investment this quarter. Fintech and health tech were among the hottest areas of investment this quarter. Venture capital investment is expected to remain steady in Q4’20, although the US presidential election and the possibility of a hard Brexit on December 31, 2020, could cause some investor concern. COVID-19 is expected to remain a key driver of both investor caution and investment heading into Q4’20. Therefore, it is safe to say, that investors will keep their focus on health care and fintech as key areas of investment,  in addition to B2B solutions and edtech.