Covid-19 Compendium a Compilation of Stories and Insights During the Early Spring Coronavirus Pandemic

Covid-19 compendium A compilation of stories and insights during the early spring coronavirus pandemic venturecapitaljournal.com/vcjs-coronavirus-coverage/ COVID-19 COMPENDIUM Venture Capital Journal Letter from the Editors During this time may you and your loved ones stay safe and healthy. The covid-19 pandemic has created so much upheaval in only a few months that one investor remarked to PEI Media: “A day feels like a week and a week feels like a month.” And unlike previous crises, coronavirus has upended everyone’s lives, leaving no one unaffected. The outbreak has induced widespread panic because of many unknowns, not the least of which is when covid-19 will cease to be a global threat. Such extreme uncertainty has pushed the world’s economy to the brink of recession, with stock markets in chaos and all industries grappling with how to do business in this strange new environment. Over the next several pages you’ll find insight on some of the most pressing issues for private markets arising from the pandemic. From our ongoing conversations with the sector, Venture Capital Journal has gathered insights and anecdotes on the virus’s early impacts that we will share. Expect comprehensive coverage in the months to come as the industry adjusts to operating in a new normal. Regards, The PEI staff 2 COVID-19 COMPENDIUM Venture Capital Journal Four biotech VCs raise new funds amid pandemic Amid the covid-19 outbreak, four biotech funds closed on $3.8 billion in over a week and a half. By Marina Temkin ealthcare and medicine have been top-of-mind worldwide including venture-backed Zentalis Pharmaceuticals, which during the worst pandemic in more than century. debuted on April 3. It was the first public offering since shelter- H in-place orders began. The cancer treatment developer opened But venture funds focused on those sectors are filling their coffers. on Nasdaq at $18 and closed its first day of trading at $23.20 per share, a 29 percent increase, indicating that public markets may “The current health crisis is a reminder of the need for innovation still have an appetite for healthcare. in sciences and biotech,” said Corey Goodman PhD, managing partner with venBio Partners, a life sciences venture firm that VenBio’s third fund is about $80 million larger than its second closed its third $394 million fund last week. $315 million fund the firm raised in 2015. The San Francisco VC is one of four healthcare firms that Although the firm did not have a shortage of demand, key LPs announced a new fund within the last week and a half. In addition, asked venBio to keep the fund under $400 million. “Statistically, Flagship Pioneering raised $1.1 billion for its seventh origination when funds grow too large, there is too much coordination fund, ARCH Venture Partners closed on $1.46 billion in funding involved,” Goodman said. across two funds and Deerfield Management Company revealed an $840 million second healthcare venture fund. Increased interest from financial investors is another indication that venBio and the biopharma industry as a whole have strong This level of funding indicates that LPs believe that investing in growth potential. While LPs in the firm’s 2011 $179 million first biotech has the potential to not only lead to better treatments but fund were primarily pharma companies, 90 percent of the third can also bring strong financial returns. fund’s LP base are financial backers including family offices, fund of funds and endowments. While venBio received commitments for its fund prior to the height of covid-19 outbreak, none of the firm’s backers pulled VenBio expects to invest in 15 companies writing checks up to $30 out of the fund after it became evident that the economy will be million per start-up, Goodman said. The firm will fund companies battered amid the pandemic, Goodman said. ARCH and Flagship across stages of development and will look to get a proof of Pioneering also did not lose any LPs, he added. concept within five years. “Biotech and healthcare tend to do well during recessions,” Established in 2011, the firm counts eight exits from its portfolio, Goodman said. including six IPOs. When markets are cold, biotech firms sell start-ups with promising While biotech firms now have more money to invest, a big clinical data to big pharma, Goodman said. “And in good markets, concern for the industry is delay and disruption of clinical trials we can take portfolio companies public.” amid the pandemic. “Fortunately, most of venBio’s portfolio companies are not in the middle of Phase 3 pivotal studies, the Last year, more than 60 biotech companies held IPOs. So far in ones we most worry about,” Goodman said. 2020, 13 biotech companies have launched public offerings, 3 COVID-19 COMPENDIUM Venture Capital Journal Series B, C companies could get left behind in this downturn While early and late stage VC-backed businesses are poised to weather this period of uncertainty, companies at the Series B and Series C stages may be left behind. By Rebecca Szkutak hile early and later VC-backed businesses are better “Some companies count on new investors coming in where that positioned to weather a period of uncertainty, might not happen,” Stanfill said. “Being stuck in that stage, you W companies at the Series B and C stages may have business to lose, your not quite as developed. It’s harder for be left behind. investors to know who is going to win or not.” Early to mid-stage companies, including Series A through C, Stanfill said it’s too early to predict how drastic of an impact this experienced the largest drop in year-on-year deal count and deal will have on that VC stage as many investors still have deals in their value during the Global Financial Crisis, according to data from pipeline that they will complete over the coming weeks. PitchBook. Today, iTeos Therapeutics, a biotech company focused on cancer Deal count at that stage saw a decline of 18.8 percent year-on- immunotherapies, announced a $125 million Series B round year and deal value dropped 35.1 percent year-on-year. PitchBook and Pandion Therapeutics, a company focused on auto immune predicts that this time won’t look all that different. therapeutics, announced a $80 million Series B. “Being in these middle rounds, you are kind of caught in the Another area they predict will have a slowdown is in emerging US middle,” Cameron Stanfill, a venture analyst at PitchBook, said. tech hubs like Austin, Atlanta or Denver. “These middle stages, B and C companies, might be fighting for support from their existing investors.” Stanfill said most early-stage companies in those types of markets typically raise their first few rounds from local investors and Stanfill said that angel and seed-round companies traditionally then look to bigger coastal VCs later on. The local investors are fare alright in a downturn because they don’t require as much typically smaller and will feel the squeeze from their communities money to stay afloat and have less to lose. On the other end of as the companies look to extend their runways. the investment spectrum, many late-stage companies have some cash in the bank and some runway ahead of them. “If a lot of funds in one region are nearing the end of their investment period and not going to find new deals,” he said. He added that many companies at these middle stages have “Many [companies] may be a lot more constrained potentially substantial business models and a customer base that could from the flow of capital.” be lost, but not as many investors looking to the write the medium-sized checks these companies would anticipate for their next round. 4 COVID-19 COMPENDIUM Venture Capital Journal Venture debt will surf, not drown, in covid-19’s wake Amidst startup layoffs and drying up deal opportunities in the time of the coronavirus pandemic, venture debt is blossoming. By Rebecca Szkutak midst start-up layoffs and drying up deal opportunities in the era of the coronavirus pandemic, venture debt looks A like a beacon of light. Venture debt lenders have reported seeing a general pickup in activity throughout Q1 as venture equity investors are tightening the purse strings and the market is putting companies in a squeeze. Firms are seeing increasing outreach as companies impacted by the market uncertainty look to extend their runway or beef up their balance sheets. David Spreng, chairman, CEO and CIO of Runway Growth, suffer without important growth capital, we just decided to forge said they have seen an uptick from both existing borrowers and ahead and continue on with our plans.” new firms. The expansion will allow Canadian tech companies, that are He said that they had been seeing a gradual increase in requests growing at a 50 to 60 percent year-over-year rate, to access loans for venture debt since the market pivoted toward profitability that range from $50,0000 to $3 million. over growth following the WeWork meltdown last year, but that accelerated quickly in Q1 as the general market started to sour. “There is a huge need for capital,” Culverhouse said. “We are going to be a little bit more precise and selective around which “March was a dramatic uptick in outreach from VCs to us,” verticals we think are going to do well.” Spreng said. Spreng said Runway will be looking closer at this, as well. They are He said existing VC relationships have reached out about their also tweaking how they ask about downside protection.

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