Venture Capital Wasn't Damaged By Pandemic * STRATEGY VENTURES

It was expected that COVID-19 pandemic would severely damage venture companies. However, it seems like it’s not the case.

Researchers at Harvard, Stanford, the University of Chicago, and the University of British Columbia surveyed over 1,000 institutional and corporate venture capitalists (VCs) at more than 900 different firms to learn how their decisions and investments have been affected by the COVID-19 pandemic.

Researchers compared answers with 2016 Results and found out that venture capitalists slowed down their investment pace by 30%. Generally, VCs reported that 52% of portfolio companies are positively affected or unaffected by the pandemic; 38% are negatively affected and 10% are severely negatively affected. Similarily, the VCs expect the pandemic to have only a small negative effect on their fund internal rates of returndown 1.6%. They also remain optimistic about their own performance, with 91% believing they will outperform public markets.

This is not the future people were predicting for startups back in May, when it was reported that 41% of startups were in danger of running out of cash within three months. Funding did slow down for a while—but then it came back, fueled by investors looking for returns wherever they could find them. According to PitchBook and the National Venture Capital Association, VCs have raised $56.6 billion for new funds through Q3, already topping 2019’s full-year total of $54.9 billion.

The most dire predictions of the impact of COVID-19 on venture capital have not materialized – the evidence suggests that the VC industry have reduced their activity less than in previous recessions and have been more resilient than many other sectors of the global economy. COVID-related stock market crash saw a mass flow-over from hospitality, travel and real estate to high-tech sectors. As a lot of startups are heavily tech-based, the enthusiasm carried over into the private venture capital market as well.

Founders should therefore expect to see further VC investment directed toward deep tech startups and organizations that promise profitability in the new normal – namely, companies that present clear solutions to modern challenges in the COVID era. Sectors such as biotech, fintech, e-commerce, and cybersecurity software have all been cast into the spotlight.