This survey is a special interim report to highlight changes in the Silicon Valley venture capital environment in light of the COVID-19 pandemic.
To facilitate analysis we are providing information on a monthly basis, rather than the typical quarterly basis. We are also providing monthly data for the comparable period in 2019. Please note that when using a shorter time period for reporting (i.e., monthly versus quarterly), the possibility of statistical anomalies increases.
Overview
The most notable changes we saw in the Silicon Valley venture environment in the first quarter of 2020 was a reduction in the number of financings, and a decline in financing price increases, as the quarter progressed.
In January 2020 there were 126 venture financings in Silicon Valley. This was the largest number of venture financings in a single month in at least five years, and close to twice the 65 financings per month averaged in 2019. The number of financings declined to 60 in February 2020 and declined further to 44 in March 2020. For comparison purposes there were 61 venture financings in March 2019. It is likely that we will learn of a few more March 2020 venture financings later in April due to delayed reporting.
The increase in January may have been due to increased concern about the economy, partly due to the growing effect of COVID-19 in China, and a resulting desire to complete financings as soon as possible. December 2019 was also a relatively light month with only 54 financings, so it's possible that some December financings slipped into January. The decline in March financings probably reflects both some pulling forward of deals into earlier months as well as a slow down in new deals due to the pandemic and related economic uncertainty, offset in part by a desire in March to complete financings as quickly as possible to make sure existing companies were adequately capitalized for the uncertain times ahead.
There was a small decline in the number of up-rounds over the course of the quarter, from 81% in January and February to 73% in March. By comparison, March 2019 had 76% up-rounds.
More notably, the Fenwick & West Venture Capital Barometer, which measures the per share price change in a company's current financing compared to its prior round, showed that while the average price increase in January 2020 was 117%, it declined to 76% in February 2020 and declined further to 46% in March 2020. By comparison, the average price increase in March 2019 was 63%. Similarly, the median price increase of financings in the quarter declined from 68% in January to 59% in February to 30% in March, and was 64% in March 2019.
We did not see a significant change in non-price terms in the first quarter of 2020. During past significant economic downturns we have typically seen an increase in terms like senior/multiple liquidation preference, ratchet anti-dilution and pay-to-play provisions. These terms will bear watching in the coming months.
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