VC deals are slowly resuming — but not like they were before
A slow return of activity in the venture capital space bodes some good news for founders and firms.
VC funding came to a halt when the coronavirus began to spread across the country this spring. Almost six months in, the virus’ impact on early stage funding lingers. According to Crunchbase’s data, the outbreak cut the number of U.S.-based VC rounds by 44%, largely affecting travel-related startups. For the most part, a lack of seed funding for struggling categories, such as hospitality and physical retail, continues.
It comes as no surprise that some venture capital deals are coming together as the economy reopens. But it’s worth noting that the new capital, for the most part, is being funneled into coronavirus era “winners,” such as telemedicine and delivery platforms. Later-stage consumer startups in hyper-growth mode have able to seek out fresh funding for extending momentum. That hasn’t been the case, however, for early stage companies.
For example, this month DoorDash announced it raised $400 million in new private equity, bringing its valuation to $16 billion. Similarly, online grocery service Instacart also attracted $225 million of fresh funding following its explosive growth in recent months. Furthermore, this week, insurance startup Oscar Health raised another $225 million in a late stage round.
Last month, pizza delivery service Slice raised $43 million in Series C funding, led by previous investor KKR and with participation from GGV Capital. In particular, delivery apps saw double and triple digit growth in recent months. Instacart’s app downloads increased by 218% from February to mid-March, while Walmart’s online grocery service doubled its year-over-year sales during the same period. Slice founder and CEO Ilir Sela said the round wasn’t directly related to the pandemic performance, but the longterm relationship between the company and investors like KKR. For Slice, “pizza withstands any economic downturn,” as it’s stable within the U.S. ecosystem, Sela told Modern Retail.
Still, the funding is helping the app keep with newfound demand. The new capital is expected to help Slice scale quicker, especially in continuing to “digitally transform” local shops, Sela said. Recently, Slice invested in implementing new backend restaurant tools, such as contactless pickup, and plans to use the new cash sum to reinvest in Slice’s existing roadmap. “It will go toward creating vertical integration for owner-operators,” Sela said, in hopes to further provide customers with value, as calls for supporting local businesses continue.
Online bidding site Bids, which initially focused on jewelry auction and recently diversified its merchandise, closed a $2 million seed round this month. CEO David Zinberg told Modern Retail that Bids, like many quarantine-friendly services, benefitted from many bored customers looking for entertainment-based shopping.
Since March, the platform has seen a 5-time increase in overall daily orders, mostly concentrated in essential home and parenting categories. Thus, it was able to get investors to help scale the business. “We’re in full speed development in redesigning the website,” he said of the new capital, along with an expansion of Bids’ presence to attract international sellers.
Early-stage VCs are still waiting and seeing. It’s unclear whether the current deal flow is part of a bigger trend of staying away from travel or hospitality-related startups, said Brooklyn Bridge Ventures founder Charlie O’Donnell, whose early stage portfolio includes DTC brands Hungryroot and Clare.
From mid-March through May, it was “six weeks of crickets,” as he put it, with little to no perspective pitches during the pandemic’s early days. And while they’ve slowly trickled back in, it’s still generally difficult for pre-launch companies to close a round. Since the crisis began, the firm has only offered one term sheet to “serious founders with a plan that made sense.” However, the round hasn’t closed yet, as there aren’t enough other firms participating, O’Donnell confirmed.
He explained that despite the acceleration trends in some spaces, most early stage VCs don’t believe “the world has changed enough” to alter long their term decisions just yet. However, “the pandemic has potentially exposed some weaknesses,” O’Donnell said of many over-funded consumer brands, which could lead to more acquisitions, à la Lululemon and Mirror. This points to the growing sentiment among investors to seek out companies with a clear exit roadmap or a path to profitability. For newer DTC brands, especially those in saturated categories, fundraising may continue to be a hurdle, he warned.
Late stage bets on well-performing services makes sense ahead of a potential recession. Many of those investors are usually looking to safely tuck money into something for a near-term exit. But for seed investors like O’Donnell — longterm players looking for new founders — activity “really hasn’t returned to normal.”