Insights / 20 August 2020

Chasing Unicorns: Venture Capital Through Covid-19

Where are VC Managers Seeing Opportunity Through Covid-19?

If past market crashes have taught us anything, it is that investments made during times of market stress see outsized returns once markets rise again. Asset values are low and Covid has created a slew of new opportunities in the VC market, there are deals to be had.

The number of deals has risen this quarter, perhaps reflecting a market taking advantage of an initial decline in valuations. Headline data from PwC’s Q2 2020 Money Tree report show managers have contributed to a rise in VC deals across Asia (+20%), Europe (+9%) and North America (+3%), with a total of 3,670 VC deals struck in these geographies this quarter. Globally, there are 23 new unicorns in 2020 so far, 17 of which were minted between March and August, lockdown months and the core of the pandemic for many countries.

Whilst headlines are quick to point out that overall financing levels are short of 2019’s, it is still very near record-high levels in the US, and globally, it is relatively healthy across funding stages, from seed, venture and private equity rounds in venture-backed firms. It is entirely possible that managers are waiting for valuations to continue to drop before writing bigger tickets, as well as taking the opportunity to shore up current investments in their portfolios and awaiting reactions from capital markets. 

Most Attractive Sectors to VC Managers During The Crisis

Industries have been dealt an uneven hand by the economic impact of the Covid-19 crisis, with the fallout hitting some sectors far worse than others. 

Healthcare and life sciences 

Perhaps unsurprisingly in a pandemic, healthcare and life sciences is a sector doing particularly well in investor and VC manager sentiment. Preqin data shows Healthtech deal values have soared amidst the pandemic. Venture Capital investment in Healthtech hit $8.2bn in Q1 2020, the highest quarterly total on record, with large deals still being made. That’s a 76% jump in Healthtech deals from Q1 2019, and a 25% increase in aggregate deal value compared with Q4 2019, and the highest quarterly total on record.

Driving this trend is the consumerisation of healthcare, in the form of on-demand, remote access to doctors, medical products and other related medical services (such as Primary Healthcare company, Kry). This sector is clearly a target for investors of all shapes and sizes, as healthcare companies across the world combat Coronavirus. According to Preqin data, 36% of investors plan to target healthcare throughout 2020.

Healthtech looks set to obtain record-high, annual VC investment this year, with more alternative assets professionals looking for opportunities in this and the other sectors poised to do well, including essential services, education, robotics and AI, financial services 2.0 and remote working solutions. 


Two themes, creating a single direction of travel are playing to the advantage of e-bike start-ups. The macro trend away from congesting and carbon emitting forms of transport combined with the lockdown fuelled micro trend of anti-Public transport presents a compelling opportunity for savvy entrepreneurs. 

The virus has been a huge catalyst in this space. On a CNBC interview Taco Carlier, CEO of VanMoof, stated that e-bike sales were up 48% in Europe compared to last year and 184% up in the UK. 

E-bikes are now becoming more popular than normal bikes in many countries. Index Ventures, known for its shrewd backing choices (which have included Facebook and Citymapper) participated in a €23m euro ($27m) series B funding round for Brussels-based Cowboys. The company’s e-bikes are a step ahead of many current e-bikes providing real-time interface on directions, battery life and speed via an app. Deloitte estimates there could be over 130m e-bikes sold between 2020-2030.


Gaming and media services have enjoyed consistent growth throughout Covid. Activisation Blizzard, admittedly an already well-established video game producer, increased activisation sales by 21% in Q1 despite being down 5% in 2017 and 2019, compared to a growth of over 20% for the S&P 500. 

The trend towards gaming and media services is unlikely to be a Covid bubble. The impact of global lockdowns looks very different from 2008 with some companies having a huge a surplus of demand, gaming start-ups, chief amongst them. According to Yuki Kawamura, “Gaming and media companies are poised to grow 10x as more and more consumers are looking for ways to entertain themselves online when they can’t hang out offline.” Yuki Kawamura was responsible for Netflix content strategy and analysis at launch, he is now a partner at Akatsuki Entertainment Technology (AET) Fund.


A large portion (15%) of investors are planning to take advantage of the e-commerce trend and have been (and will continue to) target the logistics sector this year, as e-commerce dominates globally. This is in large part due to changes in consumer behaviour, some of which may have pre-dated Covid-19 but the epidemic has accelerated.  

Famous names like Amazon have gone from strength to strength, online conversion rates hit 8.8% in February a figure comparable to Cyber Mondays. E-commerce spending in the US surged to over a 30% increase on the previous year in March and April (Rakuten Intelligence) and Think with Google now claim that 5.63% of shopping journeys now start online.   

Stay at home start-ups may continue to see success outlasts lockdown as consumers move more into the digital space permanently, Covid merely acting as a catalyst in this larger trend. In May, the Swiss start up Bring! (a grocery shopping app) closed a funding round of $ 3.8m. The Bring! team consists of just 20 employees spread over offices in Zurich and Mannheim and has a mission to make grocery shopping fun and easy. 

There will continue to be a lot of capital looking for the Covid unicorns. 

Least Attractive Sectors to VC Managers During The Crisis

Short term losers have been sectors built around proximity of people: business around tourism, hospitality and live entertainment, for example. Despite this, according to Preqin data, almost half (47%) of investors are not avoiding any particular sectors due to Coronavirus.

All of these sectors have had the biggest impact in lowering GDP across Europe, accounting for 25% of GDP in the United Kingdom and France, and 40% of GDP in Italy, for example. These sectors also suffered from structural challenges before Covid-19 hit and since the pandemic took hold these sectors have become increasingly exposed, vulnerable and unattractive. 

The question is whether these industries will recover after the pandemic and whether there are attractive disruptors who are able to harness consumer trends in order to stand out from a peer group whose prospects seem to be relatively bleak. 

According to recent McKinsey research, such firms should focus on using the crisis as a catalyst for change, perhaps using a digital-first world view in order to realise economies of scale, efficiencies and crucially, to improve competitiveness – all traits that would be interesting to Venture Capital managers. The stakes are high and the potential for outsized returns enormous, if business leaders are able to seize the initiative.  

Covid-19 and ESG in Venture Capital

ESG adoption rates among institutional investors has rapidly increased over the last few years and there has never been more talk of ESG than now. Despite this, Venture Capital has historically trailed other assets classes when it comes to ESG practices. 

This may be because of a lack of international guidance and ESG standards around issues VC managers may face when deciding where to make an allocation. The CDC Group in the UK has identified such areas as the gig economy, artificial intelligence perpetuating discrimination and the responsible use of data. 

Conversely, opportunities exist for VC managers to make positive contributions to ESG, through women’s economic empowerment, tackling climate change or through the democratisation of healthcare that we have seen accelerate over the last few months of the pandemic. Certainly, the pandemic gives some opportunity for VC managers to innovate in this arena.