Q2 saw both the highest number of deals and largest sum invested in 18 months.
If you lived under a rock for the past several months (and it may very well have felt like that, being stuck inside for so long), your expectation might be that the numbers for the year to date look somewhat dismal. Sure, the first quarter with its 191 deals was actually a slight increase on the 181 for the same period last year – but lockdowns also only started being implemented globally from mid to late-March, so their effect was always going to be minimal to begin with.
However, your expectation would be wrong.
In fact, the second quarter of 2020 had both the highest number of deals and largest total sum invested in a single month – albeit not the same month – in a year and a half. The standout months in question were April (101 deals) and June ($3.24bn invested). It means the first half of 2020 has seen a total of $10.1bn invested across 455 deals.
The obvious question is: why?
For one, while the economy has suffered on a macro-economic scale and some markets – most notably the US – have suffered catastrophic levels of redundancies, private markets have not been that bothered by what optimistic investors might consider a temporary blip.
And if you are going to invest, you may as well invest while it is cheap – a report by brokerage firm Rosenblatt Securities earlier this year estimated that the 58 fintech developers with unicorn status in October 2019 alone could lose as much as $76bn in combined valuation. Monzo, a UK-based challenger backed, stands as a stark example: the multi-corporate-backed fintech is not a spinout but its valuation was slashed by 40% in its latest round.
Universities are also increasingly becoming better at leveraging their existing networks. Indiana University, for example, has launched an angel network made up of alumni spread across the US and subsequently began connecting those individual groups with each other to exchange opportunities.
Then there are the rare blockbuster deals. Sana Biotechnology, a US-based developer of stem cell medicines based on research at Harvard University, University of Washington and University of California, San Francisco, closed its inaugural funding round at $700m in June, making it the year’s largest investment yet – and making it responsible for a decent chunk of the $3.24bn raised that month. The consortium featured at least a dozen investors, including almost every type of institutional backer: conglomerate Alphabet’s early-stage corporate venture capital division GV, state-owned investment vehicle Alaska Permanent Fund, family office Bezos Expeditions, asset manager Baillie Gifford, venture capital firm Arch Venture Partners and financial services group Fidelity.
When it came to exits, things were looking considerably more average – though this may very well change with the flurry of IPO filings being made at the moment. Already, seven out of the top 10 exits in the first half of the year have been flotations.
The total of 29 exits in H1 2020 is a slight decrease on 32 on the same period last year, but it is hardly something to be concerned about: it is a solid number for a world going through extraordinary times.
With many M&A announcements not revealing any financial details – often indicating relatively modest amounts paid – it looks unlikely, even with many IPOs on the horizon, that 2020 will beat 2019. Nobody can expect a purchase as large as that of Stanford’s data analytics spinout Tableau to occur every year.
Indeed, if we ignore enterprise software producer Salesforce’s $15.7bn purchase of Tableau, the difference between 2019 and 2020 looks significantly less dramatic: while this year’s exits stand at $2.1bn of disclosed payments, last year’s was $2.8bn for H1. That is a decrease, yes, but it seems obvious that not many corporations were in much of a buying mood and stock markets were cautious at best – it remains to be seen whether all the IPO filings in the third quarter so far will change public investors’ attitudes.
Where does this leave the university innovation ecosystem? We would argue that it is in an enviably good place, considering the state of the world. Yes, many investors – including university venture funds – will look to double down on their existing portfolios, and it will be interesting to read annual reports from TTOs to see how much of an impact the pandemic has had on new spinouts.
Considering all the doom and gloom found in mainstream press about the state of the world – and the considerable sociocultural struggles going on in the US in particular – we will need academic visionaries more than ever trying to improve the world, whether it is to find a vaccine for coronavirus or inventing an adjustable walker for elderly people to use stairs (something you might have thought existed already, but which is only being commercialised by LevelMed Technologies as of July 2020, thanks to joint research by Case Western Reserve University and the US Department of Veterans Affairs).
It is heartening to look at the data in this H1 review, therefore, to see that all of these researchers can look to count on the continued support of investors.
