The initial public offers underperformed during the latter half of 2019 and the first quarter of 2020. That set the stage for an undesirable climate afterwards. Then came Covid-19.
The start of the pandemic in China at the end of December resulted in a private investment crisis in the country, as January and February decreased 50 percent in venture capital investment in China compared to the rest of the world, according to research firm Startup Genome.
Now investment freeze is moving across Europe and the US. Although US VC companies committed $ 34.2 billion to start-ups in the first quarter of 2020, according to PitchBook-NVCA Venture Monitor, about $ 28 billion of these investments could be postponed for the remainder of the year.
… January and February 50 percent of venture capital in China fell …
Early stage start-up
500 start-ups, an early stage venture fund, recently surveyed seeds and investors at an early stage to identify Covid-19's impact on the investment climate at an early stage. The majority of the respondents were venture capital firms and angel investors. 64 percent said the pandemic would have a negative impact on their investments.
When asked how long they think Covid-19 will affect investment at an early stage, 63 percent responded that it could last between one and two years. However, the positive investor interest is increasing in sectors that benefit from Covid-19, including healthcare (47 percent) and remote work solutions (42 percent). Venture capital financing for telemedicine companies increased to $ 788 million during the first quarter of 2020. This funding level is more than triple the $ 220 million telemedicine company raised in the first quarter of 2019.
Investors suggest that start-ups prepare for thin times. They should consider reducing cash burn and investigating the operating costs of possible reductions. Startups should refrain from expansion into new markets and maintain focus on customer inventory. Startups follow the advice. According to Roger Lee data from the provider of the Human Interest pension plan, 204 start-ups started 16,229 employees between March 11 and April 8. This trend is likely to continue.
… 204 new layoffs 16,229 employees between March 11 and April 8.
Globally, Q1 2020 was a strong IPO market with an active January and February but a sluggish March. Paul Go, Ernst & Young Global IPO leader, stated, “… the unexpected and new events around Covid-19 took a toll on global health in the stock markets and, together with other global market factors, caused turbulence in the market last seen during the global financial crisis 2008. This extreme market volatility means that all ambitions to become public are very uncertain, both in terms of timing and valuation. "
Renaissance Capital IPO research firm predicts a narrow IPO window during the summer for companies not affected by the virus. Others will wait for the downturn when the economy can recover.
In the US, Airbnb, which announced in September last year that they intended to submit a stock exchange listing in 2020, has filed an application because travel has stopped. Meanwhile, Airbnb has seen a unicorn valuation fall from $ 31 billion to about $ 18 billion, and instead of submitting a stock exchange listing, the company received a new $ 1 billion capital financing round on April 6.
Start of food delivery DoorDash in late February applied for a confidential stock exchange listing with the U.S. Securities and Exchange Commission. While food delivery is booming due to Covid-19, a turbulent stock market is making this a risky move.
The public markets are volatile with large fluctuations daily.
Dealroom.co, an Amsterdam-based professional investor consulting firm, published interesting information about existing companies. Facebook, Apple and Google were affected by reduced market values of 33 percent, 29 percent and 27 percent, respectively, between January 31 and March 21, 2020.
These companies, together with Amazon and Microsoft, make up almost 18 percent of the S&P 500. Overall, the S&P 500 declined 32 percent during that period.
Not surprisingly, Uber and Lyft, which provide travel services, suffered market losses of 42 and 55 percent, respectively. Even Chinese e-commerce giant Alibaba – which was expected to flourish due to increased online sales – lost 15 percent of its market value due to production and delivery problems.
Conversely, Amazon's share has increased by nearly 20 percent between January and April. Zoom, SaaS video conferencing company, increased its market value by 77 percent over the same period, although news of "zoom bombing" or people crashing other people's conferences has hardened that increase since the beginning of April. Teladoc, a telemedicine service, grew by 37 percent.
Investors are understandably risk averse in an unpredictable environment. VCs have already tightened the criteria for financing start-ups at a later stage. New startups pose a greater risk. Investments will be rare in the coming months except for start-ups that provide products or services that meet the unique needs created by the outbreak.
Last month, in "Will" irrational "startup ratings continue?", I recently dealt with underperforming IPOs. New applications will be scrutinized in the coming months and are likely to be kept up.