Late-stage deals made Q3 2020 a standout VC quarter for US-based startups

Remember back in March when the VC game was done for the year, checkbooks were snapping shut and startup layoffs led the headlines? So much for all that. Q3’s venture capital numbers are in and they are anything but weak.

In retrospect, the Q2 VC slowdown looks more like a short-lived recharge ahead of a big push in Q3 than anything existential. We can see this today through the lens of data concerning what happened after June concluded and we moved into Q3.

According to data from PitchBook (data source) and CBInsights (data source), there was a lot to like about the third quarter if you were a U.S.-based startup.


The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


I want to dig into the data and pull out most important data points for you. We’ll get you informed and out the door in around 900 words.

If you want a more global look at the venture capital world in Q3, don’t worry. We’re doing that tomorrow right here at The Exchange. Ready? This should be both fun and informative. Let’s go!

A massive third quarter

To get a clear look at the U.S. venture capital market, we’ll start from the top down. So, the biggest numbers first, followed by increasingly narrow slices of data so we can drill down into smaller startups.

First, the top-line numbers:

  • How much money was raised by U.S.-based startups in Q3 2020? $36.5 billion, according to CBInsights, $37.8 billion according to PitchBook. Those numbers are effectively the same for purposes. CBInsights calls the number a seven-quarter high, up 22% from the Q3 2019 number and 30% from the Q2 2020 result. PitchBook agrees that Q3 2020 was strong, but has its count just under Q2 2020’s own.
  • How many deals was that money spread between? CBInsights counts 1,461 VC deals in Q3 2020 for U.S.-based startups. Per its numbers, that figure is up 1% from Q2 2020 and down 11% from Q3 2019. PitchBook, in contrast, counts 2,990 total deals, inclusive of rounds that it expects to be added as information about the quarter fills in. That tally “held steady” compared to Q3 2019, per the company.

What to make of all this information? Simple: Q3 2020 U.S.-based startup venture capital dollar volume was very strong, with deal counts coming in slightly weaker.

This means that we saw fewer, larger deals in the quarter on average, right? Let’s see:

Startup founders set up hacker homes to recreate Silicon Valley synergy

In Y Combinator’s early days, founders would move to Palo Alto, split a two-bedroom with five others to save money and trade notes around the clock with their new, like-minded roommates.

Now, as remote work continues and the pandemic persists, scores of entrepreneurs are working from home around the world. Y Combinator isn’t requiring its recent cohorts to relocate and collaboration is a screen-to-screen affair.

Now that they can work from literally anywhere, many entrepreneurs are forming homes with other founders. Hacker homes, the newest iteration of remote work adaption, feels like a nostalgic attempt to recreate some of the synergies COVID-19 wiped out. Generally speaking, it’s a nod to the digital nomad lifestyle, but in some cases, hacker homes feel closer to Hype House, a TikTok mansion laden with sponsored indulgence and wealth.

For Greg Isenberg, a growth advisor to TikTok and former head of strategy at WeWork, entrepreneur homes are a signal of what the foreseeable future of building could look like.

“The type of vibe you used to get from Y Combinator just doesn’t exist anymore,” Isenberg said, as these houses could recreate some of the scrappiness and like-mindedness that defined the incubator’s early days.

While some see founder communes as vehicles for creating a more level playing field, critics say the model perpetuates Silicon Valley cultural constructs that favor white men.

In other words, sometimes there’s a cost to after-work happy hours making a comeback.

Product Hunt, and then TikTok

Michael Houck, a former product manager at Airbnb and Uber, rented a home in Tulum, Mexico in May 2020. He put $21,000 of non-refundable money on his credit card and invited friends and people he met on the internet before hopping on a plane. Anyone who came had to be okay with a few rules: you must pay rent, launch projects and you have to be okay with building your company in public.

In all, 18 entrepreneurs, including Houck, formed The Launch House. Residents include former startup fellowship participants from On Deck, product managers and solo entrepreneurs. On the plane ride over, house founder Brett Goldstein launched its first tool.

Habitants of the Launch House use the pool for recreation and brainstorm sessions, called “pool-storms.” Image Credits: The Launch House

“How do you actually launch a consumer product? You need wide reach, influence, community and media properties all together,” Goldstein said. “I wouldn’t say we’re the next Y Combinator, but the next YC would look something like that.”

In just a few weeks, The Launch House has produced nine products, including a discovery platform for the best OnlyFans accounts, an anonymous Twitter bot that sends positive comments and tools that enhance newsletter and email reading experiences.

Launch House members described a strong focus on inclusion when populating future homes and just opened up the application process for Launch House 2. One way the house is trying to give access to other people is by open-sourcing information and projects that residents build together.

The website has a Launch Library where builders can submit their email addresses to access resources on how to build anything from a podcast to a clothing brand to a community.

“There’s this sort of veil of mystique that surrounds a lot of entrepreneurs and founders,” Goldstein said. “The curtain has been lifted, and now you can get a social media perspective, and inside look at what it takes to start and launch a company.”

Now, more than 1,500 people are on the Launch House waitlist. Multiple investors have approached the group to sponsor internal and external events and some companies have even asked for the right to do product placements.

The concept has surely brought in an audience, and copycats: an unaffiliated group called The Rocketship House posted a trailer on Twitter in October:

When reached via e-mail, organizers of Rocketship House declined to answer specific questions about the launch, or as they put it, “blast off.” The group confirmed that it is funded by a few unnamed large investors based in Beverly Hills, and includes a mix of marketers and influencers that invest in social media. It is currently accepting applications, drawing itself as similar to a TikTok mansion.

“Similar to Sway House [a residence for TikTok personalities], we will be making fun and dramatic dope bro content, centered around launching startups. We all live exciting lives, and there’s plenty of drama, so we’re excited to showcase that,” the e-mail from Rocketship House read.

Not all entrepreneur homes are following suit in terms of strategy, for more reasons than one.

Startup founders set up hacker homes to recreate Silicon Valley synergy

In Y Combinator’s early days, founders would move to Palo Alto, split a two-bedroom with five others to save money and trade notes around the clock with their new, like-minded roommates.

Now, as remote work continues and the pandemic persists, scores of entrepreneurs are working from home around the world. Y Combinator isn’t requiring its recent cohorts to relocate and collaboration is a screen-to-screen affair.

Now that they can work from literally anywhere, many entrepreneurs are forming homes with other founders. Hacker homes, the newest iteration of remote work adaption, feels like a nostalgic attempt to recreate some of the synergies COVID-19 wiped out. Generally speaking, it’s a nod to the digital nomad lifestyle, but in some cases, hacker homes feel closer to Hype House, a TikTok mansion laden with sponsored indulgence and wealth.

For Greg Isenberg, a growth advisor to TikTok and former head of strategy at WeWork, entrepreneur homes are a signal of what the foreseeable future of building could look like.

“The type of vibe you used to get from Y Combinator just doesn’t exist anymore,” Isenberg said, as these houses could recreate some of the scrappiness and like-mindedness that defined the incubator’s early days.

While some see founder communes as vehicles for creating a more level playing field, critics say the model perpetuates Silicon Valley cultural constructs that favor white men.

In other words, sometimes there’s a cost to after-work happy hours making a comeback.

Product Hunt, and then TikTok

Michael Houck, a former product manager at Airbnb and Uber, rented a home in Tulum, Mexico in May 2020. He put $21,000 of non-refundable money on his credit card and invited friends and people he met on the internet before hopping on a plane. Anyone who came had to be okay with a few rules: you must pay rent, launch projects and you have to be okay with building your company in public.

In all, 18 entrepreneurs, including Houck, formed The Launch House. Residents include former startup fellowship participants from On Deck, product managers and solo entrepreneurs. On the plane ride over, house founder Brett Goldstein launched its first tool.

Habitants of the Launch House use the pool for recreation and brainstorm sessions, called “pool-storms.” Image Credits: The Launch House

“How do you actually launch a consumer product? You need wide reach, influence, community and media properties all together,” Goldstein said. “I wouldn’t say we’re the next Y Combinator, but the next YC would look something like that.”

In just a few weeks, The Launch House has produced nine products, including a discovery platform for the best OnlyFans accounts, an anonymous Twitter bot that sends positive comments and tools that enhance newsletter and email reading experiences.

Launch House members described a strong focus on inclusion when populating future homes and just opened up the application process for Launch House 2. One way the house is trying to give access to other people is by open-sourcing information and projects that residents build together.

The website has a Launch Library where builders can submit their email addresses to access resources on how to build anything from a podcast to a clothing brand to a community.

“There’s this sort of veil of mystique that surrounds a lot of entrepreneurs and founders,” Goldstein said. “The curtain has been lifted, and now you can get a social media perspective, and inside look at what it takes to start and launch a company.”

Now, more than 1,500 people are on the Launch House waitlist. Multiple investors have approached the group to sponsor internal and external events and some companies have even asked for the right to do product placements.

The concept has surely brought in an audience, and copycats: an unaffiliated group called The Rocketship House posted a trailer on Twitter in October:

When reached via e-mail, organizers of Rocketship House declined to answer specific questions about the launch, or as they put it, “blast off.” The group confirmed that it is funded by a few unnamed large investors based in Beverly Hills, and includes a mix of marketers and influencers that invest in social media. It is currently accepting applications, drawing itself as similar to a TikTok mansion.

“Similar to Sway House [a residence for TikTok personalities], we will be making fun and dramatic dope bro content, centered around launching startups. We all live exciting lives, and there’s plenty of drama, so we’re excited to showcase that,” the e-mail from Rocketship House read.

Not all entrepreneur homes are following suit in terms of strategy, for more reasons than one.

Brighteye Ventures’ Alex Latsis talks European edtech funding in 2020

Brighteye Ventures, the European edtech venture capital firm, recently announced the $54 million first close of its second fund, bringing total assets under management above $112 million. Out of the new fund, the 2017-founded VC will invest in 15-20 companies over the next three years at the seed and Series A stage, writing checks up to $5 million.

Described as a thesis-driven fund investing in startups that “enhance learning” within the context of automation and other new technologies, coupled with changes in the way we live, Brighteye plans to disrupt the $7 trillion global education sector “as educators and students are adapting to distance learning en masse and millions of displaced workers are seeking to upskill,” according to a press release.

The firm’s investments to date include Ornikar, an online driving school in France and Spain serving more than 1.6 million students; Tandem, a Berlin-based peer-to-peer language learning platform with over 10 million members; and Epic!, a reading platform said to be used in more than 90% of U.S. schools.

To dig deeper into Brighteye’s thesis and the edtech sector more broadly, I caught up with managing partner Alex Latsis. We also discussed some of the findings in the firm’s recent European edtech funding report and how more venture capital than ever is set to flow into educational technology.

TechCrunch: Brighteye Ventures backs seed and Series A startups across Europe and North America that “enhance learning.” Can you elaborate a bit more on the fund’s remit, such as subsectors or specific technologies and what you look for in founders and startups at such an early stage?

Alex Latsis: We invest in startups that use technology to directly enable learning, skills acquisition or research as well as companies whose products address structural needs in the education sector. For example, Zen Educate addresses the systemic issue of teacher supply shortages in the U.K. via an on-demand platform that saves schools money whilst allowing educators to earn more. Litigate is an AI-driven coach and workflow tool improving results for legal associates, while Ironhack, the largest tech bootcamp in Europe and Latin America, gives young professionals the skills needed to enter the innovation economy and connects them to employers with a 90% job placement rate.

As education is a complex field we always seek to establish a degree of founder market fit, but more importantly that the founding teams themselves are a good fit internally. No startup succeeds on the merits of a founder alone, even if they may be driving the momentum.

In “The European EdTech Funding Report 2020,” you note that Europe is gaining momentum with a healthy increase in VC investments in local edtech startups. Specifically, you say that edtech VC investment has experienced 9.2x growth between 2014 and 2019 in terms of money invested. What is driving this and how does Europe compare to other major tech regions for edtech, such as Silicon Valley/U.S. or China?

Both Europe and the U.S. saw about 2% of venture capital invested in edtech in 2019. Growth in edtech investment in these markets to date has been driven largely by increased willingness to pay for training that is unavailable, unengaging or too expensive in legacy institutions and to a lesser extent by increased digital penetration in schools and universities that has enabled SaaS products to scale.

Given the rapid evolution of online education in the face of the pandemic, we expect funding for edtech will trend closer to 3%-5% of venture funding in the coming years on both sides of the Atlantic. This will mean billions in incremental investment, hundreds of new promising companies and incredible learning opportunities, particularly for those looking to upskill/reskill. In countries like India and China where school and university student populations are growing more rapidly, we expect 5%+ of VC funding to go into edtech as there is more growth in core demand.

How startups should budget in uncertain times 

I was the archetypal startup CEO: I paused my degree at Stanford to start a company, and after it failed I found myself needing to preserve cash to make student loan payments.

With an old Nissan Sentra and roommates in Menlo Park, my biggest variable cost was food. So it was ramen every night. On a good week, I might have had some sushi on Friday night and if I’d managed to come in under budget somehow (someone’s parents bought dinner) I could maybe splurge again on Saturday with friends.

My guiding principle at this time is surely familiar: Control burn until income streams are more predictable. Many startups find themselves in a similar position these days: ramen or sushi?

Some businesses are thriving during COVID-19 times, but will it last? Take online learning tools: Everybody needs online learning at the moment. When in-person reopens, probably some amount of learning will stay online since we all learned how to do it, but likely not 100%. Worse than not knowing what the percentage will be is the constant variation across geography, segment and vertical. It’s not that different from the current situation for me in San Francisco: If I want to find somewhere to buy ramen or sushi, I first have to check which spots are even open before navigating their constantly changing hours and menus.

Startup budgeting looks a bit like that now. Key assumptions we used for planning — already prone to some variation in a startup — are more volatile. Conversion rate from MQL to SQL, how many decision-makers need to approve a contract, leads generated per event (and what is an event these days), net renewal rates — these factors are all changing and they’re changing differently by customer segment, by geography and by product category. The new normal is highly dynamic.

Navigate through the uncertainty (and reevaluate quarterly)

How can we budget through this? Everyone replanned in April. Plan for a similar cycle every quarter. “Are we at a new normal? How do we know? Do we feel confident about that?”

In addition to the usual factors companies use to make predictions on metrics — things like growth rate and conversion rate — now we also have to consider a variety of outside factors: How the current cycle has impacted customers and prospects, how they’re readjusting budgets and their approach to unpredictability over the coming months. It might look like a new normal is establishing, but COVID flare-ups could happen again causing lockdowns, the U.S. is in an election cycle and there are prospects of further government intervention.

Here’s a recipe for deciding what to cook or whether you can go out:

Set assumptions and analyze, then reset on a regular and irregular cadence

Visit your budget each quarter. AND any month that burn falls outside of expectations, make adjustments.

We recommend quarterly because sales cycles tend to be longer than a few weeks so it’s hard to get data back and make adjustments after only two to three weeks. Here are the key inputs you should monitor:

Funding for female founders falls to 2017 levels as pandemic shakes up the VC market

So much for progress.

New data out this week from PitchBook indicates that the number of rounds raised by female-founded and co-founded companies fell year-over-year, with dollars invested in those rounds collapsing to 2017-era levels.


The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


It’s a disappointing quarter that comes after a few years in which female founders saw an increase in the amount of capital they were able to raise. In 2016, PitchBook data shows quarterly results for female founders totaling around 100 to 125 rounds, and between $300 and $400 million in value. By 2019, those figures rose to 150 to 200 rounds per quarter, worth between $700 million and $950 million.

To see Q3 2020 manage just 136 rounds worth just $434 million is a sharp disappointment.

The depressing results come not during a time of sharply lower aggregate venture capital results, notably. Recent data concerning Q3 2020 compiled by PwC indicates that the quarter was relatively rich. Certainly, overall deal volume in the United States is down slightly compared to year-ago periods, but female founders fared worse.

In short, a fear that well-known seed investor Charles Hudson discussed with TechCrunch during an Extra Crunch Live session back in April has come true. Let’s talk about it.

A diversity downturn?

Cards on the table, I think it’s better when venture capital is more diversely distributed. Why? Because when there’s more general access to funds, we’ll see a more varied set of products built to attack a more diverse set of issues and problems. Even more, venture capital can be a pathway to financial success for founders and employees, so investing it in all sorts of folks instead of one particular demographic set can spread the wealth around more equitably.

To fill funding gaps, VCs boost efforts to find India’s standout early-stage startups

After demonstrating scale, growth and financial improvement, one founder of a two-year-old agritech startup based in India told me that he’s now confronting a new challenge: Unlike his peers in edtech, fintech or e-commerce, there are very few investors he could approach for raising funds, he told TechCrunch, requesting anonymity. He suggested that a startup of a similar scale solving a similar problem would have little issue raising more than $50 million. But for his startup, seeking a $10 million financing round has proven very elusive in recent quarters, he said.

The story of this startup counters the narrative that fundraising for Indian startups has become easier than ever and that young firms have access to abundant capital from the market. India’s startup ecosystem raised about $14.5 billion in fundraises last year, beating its previous best of $10.6 billion in 2018, according to research firm Tracxn. But a closer look reveals that much of the capital went to a handful of late-stage startups, a trend that continues today.

In the first half of 2020, early-stage startups participated in 577 rounds to secure $1.84 billion, Tracxn told TechCrunch. That figure is the lowest the Indian startup ecosystem has seen in years. In the second half of last year, early-stage startups participated in 752 rounds to raise $3.03 billion, and in the first half of 2019, they raised $2.7 billion from 856 rounds. Series A and Series B startups are not immune to this trend either: In Q1 and Q2 2020, these startups raised $1.55 billion from 186 rounds, down from $2.69 billion from 254 rounds in the second half of last year and $2.37 billion from 279 rounds in the first half of last year, according to Tracxn. Once again, the first half of 2020 was the slowest in years for this segment.

Funding received by startups in India. Image Credits: Tracxn

Extra Crunch spoke with several VCs to understand how they were tackling this gap. We granted some of them the freedom to speak anonymously. At TechCrunch Disrupt 2020, Karthik Reddy, co-founder of Blume Ventures, India’s largest VC firm, acknowledged the gap, adding that, “There’s an artificial skew toward unicorns and chasing the unicorns.”

Calling Amsterdam VCs: Be featured in The Great TechCrunch Survey of European VC

TechCrunch is embarking on a major new project to survey the venture capital investors of Europe, and their cities.

Our <a href=”https://forms.gle/k4Ji2Ch7zdrn7o2p6”>survey of VCs in Amsterdam will capture how the city is faring, and what changes are being wrought amongst investors by the coronavirus pandemic. (Please note, if you have filled the survey out already, there is no need to do it again).

We’d like to know how Amsterdam’s startup scene is evolving, how the tech sector is being impacted by COVID-19, and, generally, how your thinking will evolve from here.

Our survey will only be about investors, and only the contributions of VC investors will be included. More than one partner is welcome to fill out the survey.

The shortlist of questions will require only brief responses, but the more you can add, the better.

You can fill out the survey here.

Obviously, investors who contribute will be featured in the final surveys, with links to their companies and profiles.

What kinds of things do we want to know? Questions include: Which trends are you most excited by? What startup do you wish someone would create? Where are the overlooked opportunities? What are you looking for in your next investment, in general? How is your local ecosystem going? And how has COVID-19 impacted your investment strategy?

This survey is part of a broader series of surveys we’re doing to help founders find the right investors.

https://techcrunch.com/extra-crunch/investor-surveys/

For example, here is the recent survey of London.

You are not in Amsterdam, but would like to take part? Or you are in another part of the country? That’s fine! Any European VC investor can STILL fill out the survey, as we probably will be putting a call out to your city next anyway! And we will use the data for future surveys on vertical topics.

The survey is covering almost every European country on the continent of Europe (not just EU members, btw), so just look for your country and city on the survey and please participate (if you’re a venture capital investor).

Thank you for participating. If you have questions you can email [email protected]

TC Sessions: Mobility 2020 starts tomorrow

TC Sessions: Mobility 2020, kicks off in full swing tomorrow! Don’t miss out on two full days devoted to the technology and people that make things fly, roll, haul or deliver. Today’s the last day you can save on the price of admission, which starts at just $25. Stop what you’re doing and go secure your ticket right now. All prices go up today at 11:59 p.m. (PT).

Got your pass? Let’s get this party started, shall we?

The conference features a ton (we measured) of experts and curated content. Learn from industry leaders across the mobility universe, keep an eye on trends, dig deep into specialty tech and interact with speakers and attendees from around the world. It’s all designed to help you expand your knowledge, your network and your business success.

Here’s a tiny taste of what you’ll find at TC Sessions: Mobility 2020 (look through the event agenda to make sure you don’t miss what matters most in your world):

  • The Changing Face of Delivery — Small startups and logistics giants alike are working on how to use automated vehicle technology and robotics for delivery. Matthew Johnson-Roberson, co-founder of Refraction AI, and Ali Kashani, the VP of Special Projects at Postmates, will talk about the challenges and opportunities of using robots for delivery.
  • Live Q&A: Investing in Mobility — Bring your questions to this live Q&A breakout session with Reilly Brennan, Amy Gu and Olaf Sakkers — some of the top investors in mobility.

Don’t miss the Mobility Pitch-off happening later today. Ten early-stage mobility startups will compete tonight in front of a panel of VCs, but only the top five will earn the right to pitch live from the main stage on Wednesday — it’s a must-see event!

Block out time in your day to explore the expo area. You’ll find 40 early-stage startups that span the mobility spectrum. Find new customers and partners, potential investments and employment opportunities — the possibilities are endless.

Your time, however, is not. That’s where CrunchMatch saves the day. Our AI-powered networking platform makes finding, connecting and scheduling with people who align with your interests quick and easy. It’ll help you stay organized and on track.

“CrunchMatch, which is basically speed-dating for techies, was very helpful. I scheduled at least 10 short, precise meetings. I learned about startups in stealth mode, what big corporations were up to — things not yet picked up by the press. It was great, and I followed up on three or four of those connections.” — Jens Lehmann, technical lead and product manager, SAP.

TC Sessions: Mobility 2020 starts later on today, but you have only a few hours left to save on passes. Buy your pass before the prices go up tonight at 11:59 p.m. (PT). Let’s get this party started.

Accel VCs Sonali De Rycker and Andrew Braccia say European deal pace is ‘incredibly active’

The other week TechCrunch’s Extra Crunch Live series sat down with Accel VCs Sonali De Rycker and Andrew Braccia to chat about the state of the global startup investing ecosystem. Given their firm’s broad geographic footprint, we wanted to know what was going on in different startup markets, and inside a number of business-model varietals that we are tracking, like API-focused startups and low-code work.

As with all Extra Crunch Live episodes, we’ve included the full video below, along with a number of favorite quotes from the conversation.

Above the paywall, I wanted to share what De Rycker said about the European startup ecosystem: It’s been stuck in my head for the last day, because her comments points to a future where there is no single center of startup gravity.

Instead, considering her bullishness on her local scene, we’re going to see at least three major hubs, namely North America with a locus in the United States, Asia with a possible capital in India, and Europe, with a somewhat distributed layout.

Here’s De Rycker from our chat, responding to my question about how active the European venture and startup scene is today (transcript has been lightly edited for clarity):

What has surprised me even more [than change in the European startup scene over time] is the acceleration in the last couple of years. And I think it’s continued in the last few months, despite the COVID environment.

And that’s really because Europe isn’t just one location, right? It’s a collection of different ecosystems, different locations, different hubs. At any point in time there are 15 to 20 cities that are relevant, and they’ve all sort of reached this tipping point. And together, Europe is at this inflection point, in terms of the quality of entrepreneurs, [and] the number of opportunities. And it feels like it’s all come together with the digitization that’s going on that we’re all, you know, very much believing in right now. And the fact that there’s a ton of capital around. So I would say that we’re seeing a pretty frenetic pace, more than, candidly, pre-COVID, which is not something we expected. […]

But I would say that overall, Europe is incredibly active [regarding] deal pace, deal count, I wouldn’t say it’s very different from what I understand to be the situation in the U.S.

Undergirding what De Rycker said above, TechCrunch recently reported on the financial results of TransferWise, a European fintech unicorn that grew 70% in the last year, to £302.6 million in revenue. Toss in Adyen’s epic run as a public European tech company and there’s lots to celebrate from the continent, even if we don’t read enough about here in the States.

Extra Crunch Live continues with some really damn fun stuff coming up (including a few more that I am hosting). So, make sure you’re in and ready for the next edition as we dig deeper into season two.

Hit the jump for the full chat and some further bits from the transcript.

Sonali De Rycker and Andrew Braccia

Here’s the full video: