Investor sentiment on COVID-19 implications Deutsche Börse Venture Network - Deutsche ...
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Investor sentiment on COVID-19 implications Deutsche Börse Venture Network 21st April, 2020
1 Key findings ▪ 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
2 Contents 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 Scope: DACH-focused Fielded anonymously
survey – neutrally hosted venture capital investors from 10 to 15 April
78 venture investors Objective: Sentiment data on
how venture investors react to
Technically conducted by an
independent market research
contributed to the survey the COVID-19 crisis company: CURTH+ROTH5
Sample description (n=78)
Investor type Region
Private venture capital
Corporate venture capital
Private equity
82%
DACH 16%
Family office & HNWI
Rest of
2% Europe
Public venture capital Rest of
World
Venture debt
Business angel
Corporate
0 10 20 30 40 50
Fund generation
26% First time fund 15% Later than 3rd fund generation
28% 2nd and 3rd time fund generation 31% Does not apply6
Majority of survey feedback
from fund sizes up to €250m,
but also growth funds
Less than €1m
€1m - €25m
€25m - €250m
€250m - €400m
More than €400m
0 5 10 15 20 25 30 35 40 45 50 %
Q: What is your fund size or allocation to venture investments?Investor portfolio data
8
%
78% see 100
90
that their 80
70
48.3 Strongly
challenged
portfolio is 60
challenged 50
40
by the 30
29.3 Challenged
COVID-19 20
22.4 Little/ not
crisis
10
challenged
0
Degree of impairment
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 Positive fair value
change 9.6% 33%
67%
Ø Negative fair value
change 21.1%
%
Q: How did the fair value of your venture portfolio develop in Q1 2020 relative to Q4 2019?10
Travel, real-estate and sports /
wellness verticals are the most
challenged, healthcare wins
0
Negatively
7 2 affected
93
Positively
3 2 affected
66
28
43 14 66
41 53 52
9 3
41 38 2
22 26 22
21 3
10 14
5 7 7 7 in percentage
points
Real Jobs / Food Enterprise Security Healthcare
recruitment software Gaming
estate
Sports / Financial /
Travel Entertainment Education E-commerce Home Other
wellness insurance
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.11
Portfolio companies have or will
implement foremost: Short-term work,
staff reductions and public financing
support
Short-term work
Reduced payroll & layoffs
Application of new public financing support
Freeze/ reduce tax & social security payments
Application for loans from public development banks
Freelancer layoffs
Freeze/ reduce office rent payments
Renegotations with suppliers
Pivoting product
Others
0 10 20 30 40 50 60 70 80 90 %
Q: What measures have your portfolio companies implemented or will implement?
Please select your top 4 measures.12
VCs spend more time with
supporting portfolio companies
and LP interactions, but less time
with new deals and sourcing
Support portfolio companies 3 13.8 82.8
Internal topics 19.0 15.5 65.5
LP communications 10.3 25.9 63.8
Research 34.5 32.8 32.8
Community activities 55.2 29.3 15.5
Evaluation of new deals 63.8 20.7 15.5
Sourcing 60.4 24.1 15.5
Fundraising GP/LP 50.0 36.2 13.8
0 10 20 30 40 50 60 70 80 90 100 %
Less Same as before More
Q: How did your allocation of time and resources change compared to before the crisis?Investment strategy data
14
Investors will either support
existing investments more or
become very selective
60
50
40
30
53.5
44.8
20
10 20.7 19.0 19.0
6.9
0 Cherry Mainly invest No new Invest in Invest in No
% Cherry Mainly invest investments
No new Invest in new Invest in
later stages Nochanges
change
picking only in current new verticals
picking portfolio
in current investments verticals later stages
portfolio
Q: How did you or will you adjust your investment strategy in venture?
Select all that apply15
%
100
57% will 90
80
43.1
Decrease
not reduce 70
of 10% or more
their fund 60
50
allocations 40
43.1 No change
into new 30
20
investments 10
13.8
Increase
of 10% or more
0
Adjustment of fund allocation
Q: Did or will you adjust the fund allocation/rate of capital deployment into new investments?16
Number of new
deals in Q2 2020
is expected to
drop by
46% compared to Q2 2019
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?17
Major decrease in venture
valuation compared to 2019.
88% anticipate a negative or
strongly negative impact
3% 3%
9%
Positive 1 to 20%
35% No change
Negative 1 to 20%
Negative 21 to 40%
50% Negative 41% and more
Q: If you think about the stage in which you primarily invest, what
percentage do you think the valuation will change compared to 2019?18
Legal terms such as liquidation
preference and anti-dilution
protection become more important
60
50
40
64
30
48
20
31 29 29
10 22
17
12
0
Liquidation Anti-dilution Voting Founders Information Board Founders
% Others
preference protection rights vesting rights seats obligation
Q: What terms in the investment agreement do you expect to become
more important to you? Select up to 5 options.GP/LP and market data
20
Concerns that the VC industry will
shrink and that investment sizes will
decrease. Some anticipate a stronger
dependence on foreign capital
Fewer venture capital funds overall
Longer closing process for financing rounds
Smaller financing rounds
Trend to flat rounds
Smaller follow-on venture capital funds
Long-term shift of preferred verticals
Trend to down rounds
More dependance on non-European VC
None %
0 10 20 30 40 50 60 70 %
Q: What could be the long-term impact on the venture capital industry?
Please select up to 5 options.21
%
100
About 40% of 90 19.5
Concerns,
that someone
will not meet
the next capital call
the funds are 80
70 22.2
concerned that 60
some LPs 50
40
could not meet 30 58.3
the next 20
No concerns,
that someone
capital call
10
will not meet
the next capital call
0
Degree of concern
Q: Are you concerned that some of your LPs will not meet your next capital call?22
Family Offices, corporates and
HNWIs are expected to reconsider
VC commitments
Family offices
Corporates
HNWI
Finance & insurance companies
Pension funds
Fund of funds
Endowments & foundations
None
0 10 20 30 40 50 60 70 80 %
Q: What LP types could react most sensitively on their VC commitments?23
Measures like a central secondary
market or a co-investment platform
could help to support the venture
ecosystem
Central secondary market
Co-investment platform
Better access to capital market/ IPO
Fundrasing marketplace
Fungible digital assets
Others
0 10 20 30 40 50 60 %
Q: What structural market improvements would help the venture ecosystem?Investor advice to founders
25
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 %
0 10 20 30 40 50 60 70
Q: What should founders emphasise more in their startup pitch in the current situation?
Please select up to 5 options.26
Founders should reflect and
understand the full implications of
the current situation
“ Show that you fully understand the current
situation and its impact on society, economy and
also investor landscape.
Private Equity, Germany
„
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, Switzerland27
Investors suggest that founders
consider longer fundraising
processes and show more flexibility
on terms and valuations
Consider a delay in the process
Be more flexible on valuation
Consider an inside round with existing investors
Consider a smaller round
Be more flexible with terms
Join virtual pitch events
Consider working capital loan
Stronger use of own network
Consider a pivot
Use matching platforms
0 10 20 30 40 50 60 70 80 %
Q: What advice would you give to founders on current fundraising strategies?
Please select up to 5 options.28
Further advice from VCs to
founders on current fundraising
strategies
“ 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
„29 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!
Get in touch with the project team
Peter Fricke Carsten Huth (project lead)
Head of Deutsche Börse Venture Network Senior Financing Manager
e-mail peter.fricke@deutsche-boerse.com e-mail carsten.huth@deutsche-boerse.com
mobile +49 (0) 171 868 46 44 mobile +49 (0) 151 634 609 39
office FinTech Hub Frankfurt office Berlin Hub
www.venture-network.comV1.0
Deutsche Börse Venture Network
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.
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