Unicorn VC deal value grew to EUR3.1 billion in H1 2020, and is on pace to surpass the EUR5.7 billion record set in 2019, according to PitchBook’s latest VC report, as companies like Deliveroo and N26 both closed substantial rounds in the first six months of the year.
Unicorn VC deal value grew to EUR3.1 billion in H1 2020, and is on pace to surpass the EUR5.7 billion record set in 2019, according to PitchBook’s latest VC report, as companies like Deliveroo and N26 both closed substantial rounds in the first six months of the year.
Unicorns have continued to grow at a healthy rate with 10 new companies achieving that status in H1 2020, taking the full number in Europe to 53 in total.
PitchBook believes the rate of newly minted unicorns could taper in the long term as it becomes more difficult to capture growth opportunities in a more challenging environment amid the pandemic
The number of unicorns is steadily increasing however, according to Nalin Patel, PitchBook’s VC expert, EMEA, and one of the authors of PitchBook’s new European VC Valuations Report.
It shows that Covid-19 has had a limited effect on valuations in angel & seed stage companies with the median angel & seed pre-money valuation reaching EUR4 million, and the top- and bottom-quartile valuations also recording increases in H1 2020, relative to 2019.
“At the start of 2010 we probably had less than 10 unicorns in Europe; now we have 53. And every year in the last decade that number has been increasing. So far this year, we’ve added 10 new unicorns. Last year, an additional 20 were added,” he explained.
PitchBook believes further dealmaking could occur as unicorns manage cash flow issues amid economic disruption. PitchBook also expects that ‘flat’ and ‘down’ rounds will increase in frequency as the year progresses and the pandemic’s impacts are more widely felt.
Early-stage company pre-money valuations are pacing higher during H1 2020 than 2019’s annual figures – another astonishing statistic given the record year for early-stage pre-money valuations in 2019 and challenges created by Covid-19 in 2020.
“VC deal value and volume has been surprisingly strong given that the majority of European economies were in lockdowns,” commented Patel. “Moving into the second half of the year, I think it will remain strong, however there could still be a slight dip and the dip may occur because of certain stimulus measures now being wound down. The furlough scheme in the UK will end in October, for example.”
“We’ll see a bit of a disconnect between earnings and valuations reported, and actual performance in the second half of this year. Redundancies are being reported almost daily this quarter, so there will be a disconnect between supply and demand in terms of cost. But I still think it will be a strong year. We’re past the first wave, hopefully a vaccine is found later this year. If not, we could see a slight dip again if cases do pick up,” added Patel.
In Q2 2020, angel & seed deal sizes remained flat quarter on quarter – which is impressive considering the pandemic-induced lockdowns. Deal sizes have not been hampered, and new highs were recorded at year end.
“First time rounds of startups have actually been decreasing in count since 2014. That points to the fact that there are more follow on rounds at the moment. It might be more difficult for a startup to get that initial round, but once they do, they are more heavily backed,” said Patel.
He points to the fact that most VC due diligence has been business as usual during the pandemic. “Many firms are saying that nothing can replace seeing the office floor, experiencing the buzz of the company. But due diligence is still taking place via video calls; certain investors are saying it’s actually beneficial because they can meet in London, Paris and New York all in one day and they don’t have to travel everywhere. They can meet startups remotely so there are efficiency gains there in terms of cost, time and transport. In that sense, the video conferencing aspect has helped.”
One recent example of this is Pexip, a video conferencing tool, which conducted a virtual IPO using its own software. “In that way they were able to demonstrate their software to their investors on the roadshow; a really innovative way to brand your own product and then use it for their exit,” explained Patel.
Why is the VC space gathering so much traction at the moment? It’s largely down to the fact that VC-backed companies are traditionally tech based, in Patel’s view. “As a result, these startups can generate more rapid growth at a lower cost.”
He continued: “Another reason is that while VC used to be reserved for niche players, now we’re seeing other capital sources enter into the VC ecosystem including sovereign wealth funds, pension funds, corporate venture arms being launched by firms to invest in startups, high net worth individuals becoming serial entrepreneurs and investors. So capital sources have been expanding as well.”
An influx of non-traditional investment into the European ecosystem has largely been credited with the rise in deal sizes and valuations of startups in recent years and this has continued into 2020.
The new VC report revealed that median early- and late-stage deal sizes with non-traditional investor participation were higher in H1 2020 than the record highs set in 2019. In H1 2020, deals with some form of non-traditional participation reached EUR14.2 billion, on track to beat last year’s record.
