COVID-19 Edition: What Is Venture Sentiment Today? Executive Summary

COVID-19 Edition: What is venture sentiment today? Executive summary

To understand the effects of the COVID-19 outbreak on the venture capital sector, we recently conducted a survey of venture firms to gauge investor sentiment on investment activity and fundraising. Within a few days, 427 venture firms responded, demonstrating the strong desire to share information across the venture community.

Some key observations:

• 81% of respondents plan to do two or fewer investments per quarter in 2020 compared to only 56% in 2019.

• A majority of respondents expect valuations will drop 21%+ across stages and geographies.

• Only 20% of respondents are modifying reserve targets; of those, they are boosting their reserve ratio by about 25%.

• For those fundraising and planning on fundraising in 2020, nearly half of sub-$50MM funds are expecting to downward modify their fundraising target.

The following pages present the findings of the survey. We hope that this helps you form a perspective on industry trends, and we look forward to hearing from you on how this aligns with your observations and strategy.

Samir Kaji

Senior Managing Director First Republic Bank @samirkaji Primary stage focus of 427 respondents 3 Respondents by primary investment stage

4% 17%

19% Series A/B

Growth

Pre-Seed

14% Seed

Post-Seed 47% 83% of respondents had fund sizes of <$151MM 4

Percentage Distribution of Fund Sizes 100%

90% Median: $50MM 80%

70%

60% 53%

50%

40%

30% 30%

20%

9% 10% 8% 1% 0% 0 to 50 51 to 150 151 to 250 ≥ 251 N/A $ Million Geographic distribution of respondents 5

55%

46% 45%

35%

25%

18%

15% 11% 10% 7% 5% 5% 2%

Sili con Valley Rest of USU.S. New York Los Angeles EU Rest of the world Boston -5% Primary investment stage by fund size 6

Fund Size ($MM) vs. Initial Investment Stage

>=≥ 251251 6% 20% 60% 14%

151 to 250 13% 22% 16% 41% 9%

51 to 150 7% 52% 21% 15% 5%

0 to 50 25% 54% 10% 11% 1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Pr e-Seed Seed Post-Seed Series A/B Growth Survey respondents noted that the percentage of companies in 7 portfolio with at least 12 months runway is quite high. This was surprising, but is a result of recent cuts in cash burn of companies.

100% 100% % of portfolio with ≥ 12 months runway by stage % of portfolio with ≥ 12 months runway by region 90% 90% 78% 80% 80% 70% 72% 68% 67% 68% 68% 67% 70% 70% 65% 61% 61% 60% 60%

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0% Pre-Seed/Seed Series A/B Post-Seed Growth Silicon RestRest of of US New York Los EU Rest of the Boston Valley U.S. Angeles world Only 15% of Silicon Valley VCs (29/188) had 8 pre-seed as primary initial focus.

Region vs. Initial Investment Stage

100% 1% 5% 2% 10% 90% 15% 16% 17% 20% 25% 19% 80% 12% 24% 11% 17% 10% 70% 15% 25% 60% 10%

50% 40% 40% 52% 56% 40% 45% 48% 35% 30%

20% 27% 30% 10% 19% 15% 16% 15% 10% 0% Sili con Valley Rest of USU.S. New York Los Angeles EU Rest of the world Boston

Pr e-Seed Seed Post-Seed Series A/B Growth 81% of respondents conveyed they would make two or fewer 9 investments/quarter in 2020 vs. 56% who responded they made two or fewer investments/quarter in 2019.

Quarterly Deployment Pace (2019 vs. 2020)

80%

70% 70%

60% 52% 50%

40%

30% 26%

20% 18% 13% 11% 10% 4% 5%

0% 0 1 to 2 3 to 5 6+

2019 2020 (Expected) Quarterly deployment by stage focus 10

Quarterly Deployment Pace (2019 vs. 2020 Expected)

100.0%

90.0%

80.0%

70.0% 3.1%

60.0% 16.4%

50.0% 2.7% 11.7% 12.9% 40.0%

7.8% 30.0% 1.3% 4.6% 0.1% 20.0% 39.2% 3.2% 0.3% 0.9% 2.3% 28.5% 1.9% 2.7% 10.0% 1.6% 0.8% 0.7% 0.8% 1.9% 16.9% 0.4% 10.3% 12.4% 6.5% 4.7% 0.0% 2.9% 0 (2019) 0 (2020)0 - (2020) 1 to 2 (2019) 1 to1 to 2 2(2020) - (2020) 3 to 5 (2019) 3 to3 to 5 5(2020) - (2020) 6+ (2019) 6+6+ (2020) - (2020)

Pr e-Seed/Seed Post-Seed SeriesA/B Growth Expected drop in valuation by stage 11

Stage & Valuation

100%

90% 6% 31% 6% 31% 25% 80% 37% 70% 20% 12% 9% 60% 22% 45% 50% 29% 2% 5%

40% 6% 19%

30% 28% 46% 7% 12% 20% 12% 10% 7% 28% 37% 16%

0% 0-10% 11-20% 21-30% 31-40% 41%+

Pr e-Seed Seed Post-Seed Series A/B Growth Nearly 80% of EU investors expect valuations to drop 12 by at least 21%.

Region & Valuation

100% 4% 2% 12% 15% 90% 14% 20% 16% 22% 30% 80% 13% 20% 70% 38% 60% 41% 40% 47% 50% 57% 40% 45% 40% 21% 30% 32% 20% 29% 10% 31% 30% 10% 24% 20% 13% 6% 7% 0% Sili con Valley Rest ofof U.S.US New York Los Angeles EU Rest of the world Boston

0-10% 11-20% 21-30% 31-40% 41%+ For every five VCs surveyed, just one is modifying reserve targets 13 because of COVID-19 and the VCs that are doing so are also boosting reserve ratio by 25%.

Follow-on Investments

Yes No 18% The median increase in follow-on reserves is 25%

82% Are you willing to make new core (e.g., not a small token check) 14 investments without meeting the founder(s) in person first (e.g., Zoom/phone call)?

Yes 68.1%

No 31.9%

The data in this chart was derived from a Twitter poll by @Samirkaji, not the Qualtrics survey. Fundraising: Are funds that are raising or planning to 15 raise modifying fund size down? Nearly 40% are.

Plan to Modify Fund Target Downward

37% Will Modify

63% Will Not Modify Smaller fund sizes are much more likely to modify fund size 16 downward, likely due to reliance on HNW/FO market

Fund Size vs. Plan to Modify Fund Target Downward

>=≥ 251 25% 75%

151 to 250 26% 74%

51 to 150 32% 68%

0 to 50 43% 57%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Yes No Silicon Valley funds are least likely to modify fund target down, 17 while ~50% outside of U.S. are planning on downshifting fund target.

Region vs. Plan to Modify Fund Target Downwards 100%

90%

80% 53% 58% 70% 60% 61% 62% 66% 71% 60%

50%

40%

30% 47% 42% 20% 40% 39% 38% 34% 29% 10%

0% Sili con Valley Rest of USU.S. New York Los Angeles EU Rest of the world Boston

Yes No Survey methodology

The link to the anonymous survey was sent via email to First Republic’s venture capital clients and contacts and posted to Twitter.

Responses were gathered from April 1 through April 6, 2020, resulting in 427 responses. Results were aggregated through the Qualtrics platform and further analyzed in-house by the First Republic team.

Contributors

Samir Kaji Elie Chalhoub Maria Menard

Senior Managing Director Quantitative Lead Director, Tech & VC Marketing [email protected] [email protected] [email protected] Survey Questions

Q1 - What is your role?

• GP in VC firm • CFO in VC firm • Principal/Analyst in VC firm • Other (please specify)

Q2 - What is the size of the current fund you are investing out of? (express in $MM)

Q3 - What is your firm’s primary location?

• Bay Area • Boston • New York • Los Angeles • Other (please specify the city, state or country)

Q4 - If you are still fundraising or will be raising a new fund in 2020, are you modifying or planning to modify the fund target downward because of current financial conditions?

Q5 - What is the primary stage to which you will make initial investments? Please choose only one.

• Pre-Seed • Seed • Post-Seed • Series A/B • Growth

Q6 - Have you modified the % of fund reserved for follow-on investments because of the current economic climate? If yes, please indicate the % you have increased reserved by (convey as an absolute % not as % change). Q7 - What was your quarterly deployment pace for new investments in 2019 (not counting follow-ons)?

Q8 - What do you anticipate your quarterly deployment pace for new investments to be for the next 1-2 quarters (not counting follow-ons)?

Q9 - What % of your companies have at least 12 months of operating runway as of 3/31/20?