What Slowdown? Silicon Valley Is Doing Nearly as Many Deals as Last Year

Deal volume increased – especially at the later stages – and software valuations fared much better than hardware companies in April compared to March, according to a Silicon Valley VC Flash Report released Friday from the law firm Fenwick & West. And most significantly, amid talk of VCs sitting on the sidelines, deal volume in April was comparable to the same average last year.

The results only cover Bay Area deals and should be taken with a grain of salt, given that they only a limited time period as opposed to the usual quarterly reports. That means there is a limited sample size. But they show that in the first full month of coronavirus restrictions, plenty of deals got done.

"Even though we didn't see the pandemic causing huge changes to top-level results, the devil is in the details," Barry Kramer, Partner Emeritus at Fenwick & West and co-author of the report, wrote in an e-mail. "While it's hard to draw conclusions from a month of data, some companies have benefited from work/learn/stay at home and others are hurt. You can see signals in our industry price/valuation info where internet/new media and software industry results in April were similar to what we were seeing in 2019; however, hardware, life sciences and other industries showed notable drop-offs. Probably not surprising, it's easier to work at home if you are a software developer than a biotech researcher, and better right now to be offering apps that enable work from home than trying to sell robotic devices to assembly lines that aren't operating."

The new report comes the same week as a survey from NFX Ventures that showing valuations dropping substantially, pessimism about the economy is growing, and most VCs remain skeptical about investing in fully remote companies.

Here are the main takeaways from the Fenwick report:

• The percentage of up-rounds declined modestly from 72% in March to 70% in April, and both were lower than the 83% of financings that were up-rounds in 2019. surprisingly, down-rounds also declined, from 16% in March to 12% in April, although both were higher than the 8% down-rounds in 2019. Flat rounds increased, to 18%, compared to 13% in March and 9% in 2019, perhaps a signal that there were more rounds led by insiders.
• The Fenwick & West Venture Capital Barometer, which measures the per-share price change in a company's current financing compared to its prior financing, showed an increase of 60% in April from 42% in March, both below the 2019 average of 93%. The median price increase increased slightly, from 26% in March to 30% in April, again below the 60% median price increase seen in 2019.
• Internet/new media and software were by far the strongest industries from a valuation increase perspective. Hardware had the worst results.
• The number of deals increased from 54 in March to 64 in April. By comparison, the average number of monthly deals in 2019 was 65.
• The percentage of Series D and E+ deals increased to 38% of all financings in April, an increase from 21% in March and the highest since August 2018 when Series D/E+ deals combined for 42% of all financings. That said, the average price increase for late-stage financings was only 26%, compared to 35% in March and 59% in 2019.
• The percentage of life sciences deals continued high at 25% of all financings, compared to 28% in March. During 2019 the percentage of life sciences deals was 14%.