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Deal Flow Activity & COVID-19: VC Disruption or Just Changing Demographics?

03 18 2021

2021 is starting better than last year for VC funding deals, as the demographics for startups are changing. The U.S. continues to have a healthy number of startups looking for funding and VCs looking to invest. VCs, communication-tech startups, and revenue-making communication companies are reaping the fruits of their labor through acquisitions and mergers to no one’s surprise. Additionally, telehealth, med-tech, and biotech are all premier funding opportunities as the pandemic continues.

What has changed is the ‘hot industry’ startups and their locations- Silicon Valley looks to be missing out as remote work and real estate costs are now top priorities. While the California tech hub has been THE location for startups, other cities are gaining ground.

The shift to remote work also impacts deal activity even though there is less collaboration between VC teams and startups. All indications are that Q1 2021 will likely be the best yet for VC funding in certain geographic locations- but Silicon Valley isn’t one of them:

“The Bay Area has for decades claimed the lion’s share of venture capital deals in the US. That hasn’t changed. But lately, its share of deals has been gradually declining. This year, predict analysts at the private equity research firm PitchBook, it will drop below 20% for the first time in their dataset, which stretches back to 2006.

The immediate culprit is the pandemic, says PitchBook analyst Kyle Stanford. Lockdown orders have allowed investors and tech workers to flee the Bay Area’s pricey homes in favor of other cities where they can work remotely at a lower rent. The shift is demonstrating that startups and venture capitalists can cut deals even when they don’t meet face-to-face, removing one of the rationales for piling into Silicon Valley’s overpriced real estate in the first place.” – Silicon Valley’s iron grip on venture capital is slipping. Quartz, February 3rd, 2021.

Many startup founders realize that it’s better in the long run to have an all-remote team than to be headquartered in one location and use an outsourced team for HR, Payroll, and benefits will save them money for use elsewhere. 

What does this tell us about VC and startups during COVID-19? VC deals are still booming all over the country, and startups are looking for funding. Perhaps jobs have been lost, and entrepreneurs and companies born… similar to after the Great Depression. 

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