Investors gain better sense about companies that will thrive post COVID-19

By Pete Settles

Having taken pause for several months, investors now feel they have clearer insight into which types of companies will survive and possibly even thrive through COVID-19 and the new reality.

“Many companies enjoyed positive returns up until the September 3 downturn, showing that investors are still willing to invest into growth companies that can demonstrate a clear path to profitability through the pandemic,” says Conor Moore, National Leader, KPMG Private Enterprise U.S. leader.

According to KPMG’s Q2 2020 IPO Insights report, while the Q2 results were encouraging to potential candidates, Moore said the IPO markets may not be open to all industries. Companies that displayed resistance to COVID-19 and those that are set on leading in the new reality did very well during Q2.

Key findings in the report

“It’s not just companies working on COVID-19 products and treatments that are seeing traction in the markets” says Janet Lehman, partner, KPMG Private Enterprise. “Investors understand that the entire drug and vaccine discovery and development process is changing and they are interested in companies that will play a role in that future.”

KPMG Private Enterprise partner Shivani Sopory says other industries are also grabbing the attention of investors.

“Investors of non-healthcare and life sciences companies are starting to broaden their view of what the new reality might look like," she said. "And that is creating opportunities for growth companies that have a clear long-term value proposition that goes beyond the current situation.”

M&A Transaction volume expected to increase in second half of 2020, while IPOs get pushed back to 2021

A recent KPMG survey of more than 400 industry professionals found the majority believe M&A transaction volume will increase in the second half of the year, while nearly half believe companies planning an exit this year will push back their plans until 2021.

Facing the new reality as a result of COVID-19, and the upcoming November 2020 presidential elections, participants were asked what they think the VC investment climate will look like in the second half of 2020.

33% expect more conservative spending by investors as they focus on the needs of companies within their existing portfolios.
30% expect an increase in investments in companies with highly relevant, scalable business models that address the new reality.
8% believe corporate investors will step up and make larger investments and acquisitions.
29% are unsure

When asked what sectors VC investors will most likely focus on and invest in during the second half of 2020:

49% chose life sciences/healthtech and biotech
40% chose technology/software and hardware

“The survey results align closely with KPMG’s Q2 2020 Venture Pulse report, which found that VC investors are taking a longer-term view of the pandemic’s impacts. But despite the number of deals in the US plummeting, VC investment remained relatively solid in Q2’20,” said Moore.

The Q2 Venture Pulse report revealed that many VC investors in the US showed interest in companies with highly relevant, scalable business models aligned to meeting the needs of consumers and businesses within the ‘new reality,’ particularly companies focused on B2B productivity, cybersecurity, digital services, and e-commerce.

“While these sectors had already been on the radar of VC investors in recent quarters, the pandemic significantly raised the importance for healthcare disruption. It opened peoples’ eyes to existing sector challenges, from obtaining personal protective equipment and facilitating remote medical appointments to conducting widespread testing and the long timeframes required to develop and distribute a vaccine.” Moore said.

Venture Pulse Q2 2020 trends to watch for in the U.S.

Given the increasing use of digital business models and remote work arrangements, cybersecurity is also expected to see increasing interest from VC investors in the US.
Given the ongoing travel restrictions in many jurisdictions, there will likely be a slowdown in international investment by US-based VC firms. With several large unicorn companies laying off skilled workers, there could also be a slowdown in investment outside of major hubs as talent becomes more readily accessible.

For more information on KPMG’s Private Enterprise group, please contact Pete Settles at psettles@kpmg.com or @pgsettles.