What is the impact of the COVID-19 pandemic on global venture capital (VC) investments?
Whether you are a VC investor, a startup founder seeking investments, or someone looking for insights about VC market trends, you will learn:
The overall impact of the coronavirus on VC investments, globally and by country
The degree of impact, in terms of percentage numbers (and how this change compares to the situation in 2019)
Whether government quarantine orders had an effect on VC investments
Table of Contents
Key Findings On VC Investment Trends
Global VC deal count declined by 23.6% in the most recent 8 weeks. On a global scale, the mean of weekly deal count between the most recent eight weeks (382) and the prior eight weeks (500) shows a decline.
Country deal counts declined by 19%-51% after lockdowns, contrasting to an upward trend in 2019 over the same weeks.
VC investments in mainland China have not bounced back. The big drop in week 5 of 2020 was a result of the national holiday of Spring Festival, which also occurred in 2019.
Having a quarantine order did not appear to have an effect on VC activities: Countries without a lockdown also have seen VC investments drop by 40%-62% in the most recent eight weeks. This suggests the pandemic caused the decline, not the lockdown itself.
Summary of Q1 2020 Reports
Below is a summary of findings from these reports.
Before the COVID-19 pandemic, the U.S. VC market appeared promising:
It reached a record high number of VC firms, active funds, assets under management (AUM), and dry powder at the end of 2019. 1,328 U.S. VC firms had an aggregate of US $444B in AUM and US $121B in dry powder they could deploy.
Figure 1. 1,328 U.S. VC firms had an aggregate of US $444B in AUM and US $121B in dry powder at the end of 2019. Source NVCA .
The pandemic has impacted VC deal activity, which relies on networking, meetings with founders, and product demonstrations that often involve in-person engagement.
While Q1 2020 demonstrated an increase in capital invested, much of this can be attributed to the completion of a handful of large deals that likely had already begun the due diligence process in Q4 2019.
In terms of deal count, Table 1 below summarizes the findings and predictions from three quarterly reports.
Two reports show a quarter-over-quarter (QoQ) decline in deal count in the US. The third shows a QoQ increase in round count in the US and Canada.
Table 1 Three quarterly reports predict a decline for VC investments in the US in Q2 2020.
Global: Weekly Deal Count Dropped by 23.6% in Weeks 12-19
At the global scale, in the first 19 weeks of 2020, the mean of the weekly VC capital investments has been US $4.68B, while the mean of the weekly deal count number has been 462 (Fig. 2).
A comparison of the mean values of the weekly deal count between the most recent eight weeks (weeks 12-19 of 2020) and the prior eight weeks (weeks 4-11 of 2020) shows a decline by 23.6% (382 vs 500).
Figure 2. Weekly VC deal count in the globe declined by 23.6% in the weeks 12-19 over the weeks 4-11. Data from Pitchbook as of May 14th, 2020.
Countries with a Lockdown: Weekly Deal Count Dropped By Up To 51% After Lockdown
Among the countries/regions with a lockdown, the US, mainland China, India, the UK, Germany and Israel accounted for approximately 80% of the global VC deals and invested capital for the week of May 4th, 2020.
The US VC market exhibits a similar trend (Fig. 3) with the global one (Fig. 2), which is not surprising given the US accounts for about half of the global VC market. For the first 19 weeks of 2020, the weekly VC capital investments has been US $2.37B, while the weekly deal number has been 237.
Among its 50 states and the District of Columbia, 46 had a lockdown. After the first date of the lockdown (San Francisco Bay Area on March 17, California on March 19), weekly deal count has declined by 25.7% (Table 2).
This contrasts with the 13.6% increase in deal count between weeks 12-19 and the weeks 4-11 in 2019.
Figure 3. Weekly VC deal count in the US declined by 25.7% after the start of the first lock down in the week of March 16. Data from Pitchbook as of May 14th, 2020.
At the first glance of Fig. 4, it seems the Chinese VC market bounced back within weeks after the first lockdown in Wuhan on January 23, 2020. However, a comparison with the same weeks in 2019 unveiled the real reason:
The business closure during the week-long National holiday of the Spring Festival (Chinese New Year) in those weeks. For 2020, the holiday happened to start the day right after the lockdown.
For the first 19 weeks of 2020, the weekly VC capital investments in startups in mainland China has been US $755.60M, while the weekly deal number has been 43. A comparison of the mean values of the weekly deal count after and before the first lockdown shows a decline by 50.8% (Table 2), which contrasts to a 17.9% decline for the same comparison between the weeks in 2018-2019. The pandemic attributed to the larger decline in 2020.
A comparison between the most recent six weeks to the prior six weeks shows a similar weekly mean in deal count (51 vs 49). A comparison between the most recent four weeks to the prior four weeks shows a decline in weekly mean (57 vs 48).
These results suggest that VC investments in mainland China have not bounced back from the COVID-19’s impact.
Figure 4. Weekly VC deal count in mainland China declined by 50.8% in the eight weeks after the start of the first quarantine in the week of January 20. However, the large drop in the weeks of January 20 and 27 were mainly caused by the week-long national holiday of Spring Festival (a similar drop observed in 2019). Data from Pitchbook as of May 14th, 2020.
UK, India, Germany and Israel
The other four countries with a lockdown also showed a decline in weekly deal count after the lockdown (Fig. 5-8), while the same comparison of weeks over weeks in 2019 showed an increase (Table 2).
Figure 6. Weekly VC deal count in the UK declined by 19.3% after the start of the first lock down in the week of March 23. Data from Pitchbook as of May 14th, 2020.
Figure 5. Weekly VC deal count in India declined by 44.8% after the start of the first lock down in the week of March 23. Data from Pitchbook as of May 14th, 2020.
Figure 7. Weekly VC deal count in Germany declined by 39.3% after the start of the first lock down in the week of March 23. Data from Pitchbook as of May 14th, 2020.
Figure 8. Weekly VC deal count in Israel declined by 41.7% after the start of the first lock down in the week of March 30. Data from Pitchbook as of May 14th, 2020.
Table 2. Six countries/regions with approximately 80% share of the global VC market all experienced a decline by up to 51% after the start of a lockdown. Deal count numbers in weekly mean and standard deviation.
Countries without a Lockdown: Weekly Deal Count Dropped by up to 62% in Weeks 12-19
While most governments of the major economic entities imposed a lockdown, some countries and regions decided not to (while still encouraging their residents to practise physical distancing).
In Japan, the weekly VC capital investments in the first 19 weeks of 2020 has been US $40.18M, while the weekly deal number has been 4 (Fig. 9).
A comparison of the mean values of the weekly deal count between the most recent eight weeks and the prior eight weeks shows a decline by 39.5% (Table 3). This contrasts to a 0.0% change for the same comparison between the same weeks in 2019.
Figure 9. Weekly VC deal count in Japan declined by 39.5% in the weeks 12-19 over the weeks 4-11. Data from Pitchbook as of May 14th, 2020.
In Sweden, the weekly VC capital investments in the first 19 weeks of 2020 has been US $38.29M, while the weekly deal number has been 5 (Fig. 10).
A comparison of the mean values of the weekly deal count between the most recent eight weeks and the prior eight weeks shows a decline by 61.5% (Table 3). This contrasts to a 15.4% decline for the same comparison between the same weeks in 2019.
Figure 10. Weekly VC deal count in Sweden declined by 61.5% in the weeks 12-19 over the weeks 4-11. Data from Pitchbook as of May 14th, 2020.
Table 3. Two countries without a lockdown experienced a decline by up to 62% in the most recent eight weeks. Deal count numbers in weekly mean and standard deviation.
Historical Context: Participation of Nontraditional Investors in VC Deals Could Be a Determinant of Venture Activity in Upcoming Quarters
During the Great Recession in the US (December 2007 – June 2009), while the capital invested declined, deal count peaked in 2008 and declined by just 5% year-over-year in 2009, suggesting VCs continued to engage in new deals during the recession .
While it is too early to determine if we will see the same response as witnessed during the Great Recession, deal activity from Q1 2020 thus far has demonstrated an inverse trend:
The deal count has declined following the start of the pandemic, while the capital invested has slightly increased .
Now, there’s an interesting trend that differentiates the current VC landscape from that of the Great Recession.
It is the rising prevalence of nontraditional investors, including hedge fund managers, corporate VC firms, pension funds, and other private asset managers involved in VC deals .
In the past few years, nontraditional investors have contributed significantly to finance pre-IPO deals in the late-stage market, which has driven up aggregate VC deal value and increased the liquidity of the VC market.
While nontraditional investors historically have retracted from VC activity quickly during periods of economic uncertainty, as seen in the 30% decline in venture deals during the 2008-2009 crisis, their behavior in this pandemic has varied .
In fact, two of the three largest deals witnessed in Q1 2020 were led by nontraditional investors.
That includes Grab’s US $886M venture funding from Mitsubishi UFJ Financial Group, MUFG Innovation Partners and TIS on February 25, 2020 and Gojek’s US $3B of Series F venture funding in a deal led by Tencent Holdings, JD.com and Alphabet on March 17, 2020. This activity continued beyond Q1 2020, as nontraditional investors led later stage VC deals, including a $3B investment in Waymo on May 12, 2020 and a $390M investment in GRAIL on May 6, 2020.
Table 4. A select list of VC deals led by nontraditional investors in 2020 YTD
Table 4 demonstrates that 5 out of the 8 largest deals in 2020 YTD have been led by nontraditional investors (i.e. Canada Pension Plan Investment Board, Tencent Holdings, Mitsubishi UFJ Financial Group, etc.)
It appears that nontraditional investors have not scaled back on leading later-stage venture deals even amidst the pandemic. While it remains to be seen if they will eventually revert to their historical behavior during 2008-2009 and decrease the quantity of VC deals as the pandemic continues, there is no indication so far that COVID-19 has stifled them from writing large checks to later stage startups.
At the time this article was published (in week 20 of 2020), US, the biggest VC market in the world, has gone two months into the first shelter-in-place order. Many of the locked-down US states had begun a phased reopening process of business and society.
Mainland China, arguably the second biggest VC market in the world, has seen the ending of the last city-level quarantine in Wuhan on April 8, 2020.
Will VCs choose to adopt a more conservative approach in supporting their existing portfolio?
Will they prefer selecting new investments?
Will they choose to follow the patterns of previous economic downturns and invest more heavily in early-stage companies that could yield higher multiples?
Answers to these questions depend on many factors.
Among them are the comfort level of VCs doing a part of or full due diligence remotely and the wait period of VCs in starting new deals. The fundamental is, the all time high US $121B in US VC dry powder recorded in Q4 2019 suggests that US VCs have plenty of capital to deploy in promising startups.
It is a matter of when they will deploy the dry powder.
While Q1 2020 deal value has remained robust, the full effects of the COVID-19 pandemic on the venture landscape will not be reflected until the end of Q2 2020. At that time, both deal count and deal value are expected to drop dramatically QoQ.
Our weeks-over-weeks analysis provides one of the first quantitative studies into the impact of the COVID-19 pandemic on VC investments: a global 23.6% decline in weekly deal count in the weeks 12-19 of 2020.
The finding of our research suggests that the existence of a government-imposed lockdown order does not make a bigger impact on VC investment, as opposed to without. However, it does not mean that reopening would not trigger positive signals that may stimulate venture activities.
It remains to be seen how the reopening of business and society in each country will propel positive economic growth and counterbalance the impact of the pandemic.
For data analysis, we used metrics of the total VC invested capital and the total VC deal count. Between the two metrics, deal count was chosen as the primary metric because invested capital is undisclosed sometimes.
When considering countries, we used the country of startups’ headquarters. We are interested in seeing whether a partial or full lockdown imposed by the government has made any difference.
Pitchbook was used as the main data source because it is among the most covered when it comes to investment deals in the US and is endorsed by the NVCA.
For countries with a lockdown, we have selected six of the countries/regions with the largest VC markets .
We have verified the coverage of Pitchbook’s data on VC investments in mainland China against the latest report from ChinaVenture. ChinaVenture’s latest quarterly report  showed a combined deal count of 5,428 and invested capital of US $56.2B in 2019; and a deal count of 422 and invested capital of US $5.3B in Q1 2020. Pitchbook’s data returned a VC deal count of 3,596 and invested capital of US $48.7B in mainland China in 2019; and a deal count of 504 and invested capital of US $9.19B for Q1 2020.
For countries without a lockdown, we have chosen Japan and Sweden.
We have verified the coverage of Pitchbook’s data on VC investments in Japan against the latest report from the Japan Venture Capital Association (JVCA). JVCA’s latest report on the year of 2018 showed JPY 136.1B (US $1.27B) , while Pitchbook’s data on VC invested capital in Japan in 2018 was 20% higher (US $1.52B). We have also verified the coverage of Pitchbook’s data on VC investments in Sweden against the latest report from the Swedish Private Equity and Venture Capital Association (SVCA). SVCA’s latest report on the year of 2017 showed EUR 237M , while Pitchbook’s data on VC invested capital in Sweden in 2017 was almost four times as large (US $955.87M).
We grouped the data on a weekly basis, according to the ISO-8601 definition of a week, and looked at the weekly VC investments. Since weekly data can fluctuate, we calculated the means (averages) and standard deviations (SD) for selected windows of weeks for the purpose of comparison. The length of the window is determined by the start date of the lockdown, or otherwise eight weeks.
Subscribe to our innovation newsletter
You will get access to comprehensive, practical innovation research and articles, along with a curated list of the best events happening in the industry. Once a month.
 500 Startups (2020). The Impact of Covid-19 on the Early-Stage Investment Climate. URL: https://survey.500.co/investor-survey-report-download/. Accessed on May 11, 2020.
 Stifel Financial Corp. (2020). Market Pulse Survey Responses. URL: https://www.stifel.com/Newsletters/InvestmentBanking/BAL/Marketing/SocialMediaPostings/GTG_SurveyResults_041720_vf.pdf. Accessed on May 11, 2020.
 Kemper Ahl, Hans Swildens (2020). The Impact of COVID-19 on VC Funds. URL: http://www.industryventures.com/the-impact-of-covid-19-on-vc-funds/. Accessed on May 11, 2020.
 Conor Moore (2020). Venture Capital’s Response to COVID-19. URL: https://home.kpmg/xx/en/blogs/home/posts/2020/04/venture-capital-response-to-covid-19.html. Accessed on May 11, 2020.
 NVCA & Pitchbook (2020). Venture Monitor Q1 2020. URL: https://nvca.org/wp-content/uploads/2020/04/Q1_2020_PitchBook_NVCA_Venture_Monitor-1.pdf. Accessed on May 11, 2020.
 PwC & CB Insights (2020). Venture Capital Funding Report Q1 2020. URL: https://www.cbinsights.com/research/report/venture-capital-q1-2020/. Accessed on May 11, 2020.
 Gené Teare, Mary Ann Azevedo (2020). North American Venture Report: Funding Up Slightly In Q1. URL: https://news.crunchbase.com/news/north-american-venture-report-funding-up-slightly-in-q1/. Accessed on May 11, 2020.
 Maryam Haque (2020). NVCA 2020 Yearbook: 10 Trends to Watch for the Start of a New Decade. URL: https://nvca.org/nvca-2020-yearbook-10-trends-to-watch-for-the-start-of-a-new-decade/. Accessed May 11, 2020.
 Paul Condra, Aria Nikkhoui (2020). The Ripple Effects of COVID-19 on Emerging Technologies. URL. Accessed on May 11, 2020.
 Peter Vanham (2020). Which countries have the most venture capital investments? URL: https://www.weforum.org/agenda/2015/07/which-countries-have-the-most-venture-capital-investments/. Accessed on May 11, 2020.
 ChinaVenture (2020). 一季度VC/PE市场新基金数量腰斩 创投交易数量骤减七成. URL: https://pic.chinaventure.com.cn/reportFiles/6654372972855296.pdf. Accessed on May 13, 2020.
 JVCA (2019). ベンチャーキャピタル最新動向レポート(2018年). URL: https://jvca.jp/research/14532.html. Accessed May 14, 2020.
 Sigurd Næss Schmidt, Jonas Bjarke Jensen (2019). Economic Footprint of Swedish Venture Capital. URL: https://www.svca.se/rapporter/economic-footprint-of-swedish-venture-capital/. Accessed May 12, 2020.
Liyu Wang, Ph.D., Senior Innovation Researcher
Erika Hull, Venture Analyst
Published on May 14, 2020
A deck version of the article with extended and updated information was presented at the Oxford Entrepreneurs Network Bay Area Webinar: COVID19 Response Strategy and VC Landscape on July 9th, 2020. Download the presentation deck in PDF.