Startups' Valuations Are Climbing More Slowly Since Covid-19

(Bloomberg) -- The coronavirus pandemic is still hitting startup valuations hard, but the pain was less acute in April than in March, according to a new report from Silicon Valley law firm Fenwick & West.

About the same number of companies, 64, got venture funding in April compared to an average month in 2019, the report’s authors wrote. But the per-share change in a private company’s stock price rose only 60% with each new funding round. That’s a bit better than in March when share prices went up by only 42%, but far worse than in the average month last year, when startups’ stock prices increased by 93%.  

Broadly speaking, internet and software-based companies showed funding results in April in line with 2019 averages, said partner emeritus Barry Kramer, one of the report’s authors. But hardware, life sciences and other industries showed notable declines.

“It’s a lot easier to develop an app from home than it is to do pharmaceutical research,” Kramer said. “And it’s a lot better to be selling an app that helps people work/learn/live at home than to be selling hardware for an assembly line that isn’t operating.”

About 70% of companies that raised money in April saw their valuations increase in the funding round. That compares to to 83% for all of last year. About 18% of the startups raising money were d at about the same amount as in their last funding round, the report said, higher than the 9% average in 2019. About 12% of startups got valuations that were lower, compared with 8% in 2019.

Late-stage deals, meaning the company was at or beyond its Series D round of venture funding, accounted for 38% of deals in April, the highest since August 2018. However, the valuations of those late-stage startups increased only 26% on average, compared to an average of 59% for late stage companies that raised new rounds in all of 2019.

Early-stage companies raising Series A rounds represented only about one-fifth of all transactions in April, compared to about one third for all of 2019, indicating early-stage companies are facing more challenges raising cash.

The firm also revised up the number of companies that won funding rounds in March, to 54 from 44 previously.

©2020 Bloomberg L.P.