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Investor sentiment on COVID-19 implications
Deutsche Börse Venture Network
21st April, 2020
Key findings
1
▪ 78% of VCs see their portfolio challenged by COVID-19
▪ Number of new VC deals in Q2 expected to drop by 46%
▪ Healthtech vertical with strong momentum and outlook
▪ VCs spend more time with portfolio support and their LPs
▪ Some LPs are expected to reduce their allocation in venture
Contents
2
3 Research and sample design 24 Investor advice to founders
7 Investor portfolio data 29 About the sentiment report
13 Investment strategy data 30 Contact us
19 GP/LP and market data 31 Disclaimer
Research and sample
design
4
Research design
Invite-only web-based survey – neutrally hosted
Fielded anonymously from 10 to 15 April
Scope: DACH-focused venture capital investors
78 venture investors
contributed to the survey
Objective: Sentiment data on how venture investors react to the COVID-19 crisis
Technically conducted by an independent market research company: CURTH+ROTH
Sample description (n=78)
5
0 10 20 30 40 50
Corporate
Business angel
Venture debt
Public venture capital
Family office & HNWI
Private equity
Corporate venture capital
Private venture capital
Investor type Region
82%DACH 16%
Rest of
Europe2%Rest of
World
Fund generation
26% First time fund 15% Later than 3rd fund generation
28% 2nd and 3rd time fund generation 31% Does not apply
6
0 5 10 15 20 25 30 35 40 45 50
More than €400m
€250m - €400m
€25m - €250m
€1m - €25m
Less than €1m
Majority of survey feedback from fund sizes up to €250m, but also growth funds
Q: What is your fund size or allocation to venture investments?
%
Investor portfolio data
8
22.4
29.3
48.3
0
10
20
30
40
50
60
70
80
90
100
Degree of impairment
78% see that their portfolio is challenged by the COVID-19 crisis
%
Strongly
challenged
Challenged
Little/ not
challenged
Q: How is your venture portfolio challenged by the COVID-19 crisis?
9
Fund portfolios show fair value
developments between on
average +10 to -21%
%
Ø Negative fair value
change 21.1%
Ø Positive fair value
change 9.6%
67%
33%
Q: How did the fair value of your venture portfolio develop in Q1 2020 relative to Q4 2019?
Q: Which of the following industry verticals will be most affected positively/ negatively by
the COVID-19 crisis in the long-term? Please select up to 5 industry verticals.
Travel, real-estate and sports / wellness verticals are the most challenged, healthcare wins
10
5 7 10 7
22 2621
53
41
22
52
38
14
66
7
93
66
4341
2814
9
7
3
3
2
2
0
3
Negatively
affected
Positively
affected
in percentage
points
TravelSports /
wellness Other
Food
Entertainment
Jobs /
recruitment
Financial /
insurance
Enterprise
software
Education
Security
E-commerce
Gaming
Home
Healthcare
2
Real
estate
Q: What measures have your portfolio companies implemented or will implement?
Please select your top 4 measures.
0 10 20 30 40 50 60 70 80 90
Others
Pivoting product
Renegotations with suppliers
Freeze/ reduce office rent payments
Freelancer layoffs
Application for loans from public development banks
Freeze/ reduce tax & social security payments
Application of new public financing support
Reduced payroll & layoffs
Short-term work
%
Portfolio companies have or will implement foremost: Short-term work, staff reductions and public financing support
11
Q: How did your allocation of time and resources change compared to before the crisis?
50.0
60.4
63.8
55.2
34.5
10.3
19.0
3
36.2
24.1
20.7
29.3
32.8
25.9
15.5
13.8
13.8
15.5
15.5
15.5
32.8
63.8
65.5
82.8
0 10 20 30 40 50 60 70 80 90 100
Fundraising GP/LP
Sourcing
Evaluation of new deals
Community activities
Research
LP communications
Internal topics
Support portfolio companies
Less Same as before More
VCs spend more time with supporting portfolio companies and LP interactions, but less time with new deals and sourcing
12
%
Investment strategy
data
Q: How did you or will you adjust your investment strategy in venture?
Select all that apply
Investors will either support existing investments more or become very selective
53.5
44.8
20.7 19.0
6.9
19.0
0
10
20
30
40
50
60
Cherrypicking
Mainly investin currentportfolio
No newinvestments
Invest in newverticals
Invest inlater stages
No changeInvest in
later stagesMainly invest
in current
portfolio
No new
investmentsCherry
picking only
Invest in
new verticals
No
changes%
14
Q: Did or will you adjust the fund allocation/rate of capital deployment into new investments?
Increase
of 10% or more
No change
Decrease
of 10% or more
57% will not reduce their fund allocations into new investments
13.8
43.1
43.1
0
10
20
30
40
50
60
70
80
90
100
Adjustment of fund allocation
%
15
Q: How many new investments (without follow-ons) did you sign in
Q2 2019 and how many do you expect to sign in Q2 2020?
46% compared to Q2 2019
Number of new deals in Q2 2020 is expected to drop by
16
Q: If you think about the stage in which you primarily invest, what
percentage do you think the valuation will change compared to 2019?
Major decrease in venture valuation compared to 2019. 88% anticipate a negative or strongly negative impact
3%
9%
50%
35%
3%
Positive 1 to 20%
No change
Negative 1 to 20%
Negative 21 to 40%
Negative 41% and more
17
Q: What terms in the investment agreement do you expect to become
more important to you? Select up to 5 options.
Legal terms such as liquidationpreference and anti-dilution protection become more important
64
48
31 29 29
2217
12
0
10
20
30
40
50
60
OthersFounders
obligationBoard
seats
Founders
vesting
Information
rights
Voting
rightsAnti-dilution
protection
Liquidation
preference%
18
GP/LP and market data
Q: What could be the long-term impact on the venture capital industry?
Please select up to 5 options.
0 10 20 30 40 50 60 70
None
More dependance on non-European VC
Trend to down rounds
Long-term shift of preferred verticals
Smaller follow-on venture capital funds
Trend to flat rounds
Smaller financing rounds
Longer closing process for financing rounds
Fewer venture capital funds overall
Concerns that the VC industry will shrink and that investment sizes will decrease. Some anticipate a stronger dependence on foreign capital
%
%
20
Q: Are you concerned that some of your LPs will not meet your next capital call?
58.3
22.2
19.5
0
10
20
30
40
50
60
70
80
90
100
Degree of concern
Concerns,
that someone
will not meet
the next capital call
About 40% of the funds are concerned that some LPs could not meet the next capital call
%
No concerns,
that someone
will not meet
the next capital call
21
Q: What LP types could react most sensitively on their VC commitments?
0 10 20 30 40 50 60 70 80
None
Endowments & foundations
Fund of funds
Pension funds
Finance & insurance companies
HNWI
Corporates
Family offices
%
Family Offices, corporates and HNWIs are expected to reconsider VC commitments
22
Q: What structural market improvements would help the venture ecosystem?
Measures like a central secondary market or a co-investment platform could help to support the venture ecosystem
%0 10 20 30 40 50 60
Others
Fungible digital assets
Fundrasing marketplace
Better access to capital market/ IPO
Co-investment platform
Central secondary market
23
Investor advice to
founders
Q: What should founders emphasise more in their startup pitch in the current situation?
Please select up to 5 options.
%
25
%
10 20 40 6030 50 700
VCs recommend founders to emphasise not alone traction, but post-COVID opportunities in their current pitches
Traction / financials / KPIs
Opportunities post-COVID
Business resilience
Profitability
Key risks
Pre- and post-crisis growth projections
Founder / team
Address long-term changes
Storytelling
Competition
Others
Adjust time frame & strategy in fundraising and rethink
how you can grow. Investors tend to support priorities
and will be more careful with new investments.Family Office & HNWI, Switzerland
Show that you fully understand the current
situation and its impact on society, economy and
also investor landscape. Private Equity, Germany
Founders should reflect and understand the full implications of the current situation
“„
26
Q: What advice would you give to founders on current fundraising strategies?
Please select up to 5 options.
Investors suggest that founders consider longer fundraising processes and show more flexibility on terms and valuations
%0 10 20 30 40 50 60 70 80
Use matching platforms
Consider a pivot
Stronger use of own network
Consider working capital loan
Join virtual pitch events
Be more flexible with terms
Consider a smaller round
Consider an inside round with existing investors
Be more flexible on valuation
Consider a delay in the process
27
Use you own network: request warm intros.
Expand your runway by focusing on cash and cost
cutting. Investors act very risk-averse currently.
Therefore, you will need more time to raise. Private VC, France
If possible, try to shift your fundraise to
Q4 2020 or even later to 2021.Private Equity, Germany
Further advice from VCs to founders on current fundraising strategies
“„
28
About the sentiment report A contribution in times of uncertainty
Deutsche Börse is making a large effort to strengthen and expand venture capital financing in
Germany and Europe. At Deutsche Börse Venture Network it has been our mission to create a
strong ecosystem of growth. We believe in the power of innovative ideas – for a better future.
Since 2015 we have been connecting striving start-ups and investors, aiming to improve the overall
funding situation in venture capital. Our growth network currently encompasses about 200 start-ups,
420 investors and multiple partners.
In these times of high uncertainty, caused by the COVID-19 pandemic, a strong ecosystem has
become more important than ever. In addition to the founders’ perspective, which has already been
covered in several surveys, it is crucial to gain understanding of the entire ecosystem. This includes
venture investors and also their limited partners. Therefore, we have conducted a sentiment survey
which takes a closer look at investors and how they react to COVID-19 crisis.
The objective of the data-driven sentiment report is to present aggregated results in order to illustrate
the status quo situation for investors and derive recommendations for founders.
We would like to thank all participants who took part in the survey. Your insightful and valuable
contributions made this report possible. Thank you and stay healthy!
29
www.venture-network.com
Peter Fricke
Head of Deutsche Börse Venture Network
e-mail [email protected]
mobile +49 (0) 171 868 46 44
office FinTech Hub Frankfurt
Get in touch with the project team
Carsten Huth (project lead)
Senior Financing Manager
e-mail [email protected]
mobile +49 (0) 151 634 609 39
office Berlin Hub
Disclaimer
Any information contained herein is subject to change without notice, and is provided without any representation or warranty, express or implied, as to its actuality, accuracy,
completeness, correctness or fitness for any purpose. This publication is provided for convenience purposes only and does neither constitute legal or financial advice nor a binding
commitment of Frankfurter Wertpapierbörse, Deutsche Börse AG or any of its affiliates.
© 2020 Deutsche Börse AG
Deutsche Börse Venture Network
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