Seeding the exception: A flight to safety and back again

This time last year we were in the midst of the worst stock market crash in history. The private markets were no different. Notably, Sequoia published Coronavirus: The Black Swan of 2020.

Sitting at the bottom, few of us would have predicted public and private markets hitting all-time highs less than a year later.

We saw record capital deployed into startups in 2020 and no slowdown in financings.

The seed-stage exception

But the story isn’t that simple. While venture investing across the board was hitting all-time highs, activity was skewed to later stage and follow on financings.

Many of us seed investors felt the pace of deals accelerate. In reality, the number of seed financings hit its lowest since 2016. Capital deployed was down too, but to a lesser extent.

Similar to 2016, the phrase on the tip of everyone’s tongue was “flight to quality.” (Flight to quality meaning more capital into fewer, presumably better, companies.)

Interestingly, these “higher-quality” companies didn’t command higher prices.