Atlanta startups report lowest VC funding in two years, thanks to Covid-19

The era of record-breaking venture capital rounds in Atlanta may be over, thanks to the coronavirus pandemic.

According to PitchBook’s latest report, startups in the Atlanta-Sandy Springs-Marietta metropolitan area raised $147.87 million in Q2 from 39 deals, down significantly from the $590.55 million raised from 48 deals in Q1. Pitchbook originally reported Q1 raised $594 million from 46 deals.  The number of deals in Q2 isn't far outside the norm for Atlanta VC, but the amount raised is the lowest reported for a single quarter since 2018 Q1.

Though funding has dropped significantly during the tumultuous economic uncertainty, some local startups were able to cash in during the second quarter.

The state as a whole didn't fare much better, with $162.41 million raised from 45 deals in Q2, down from $607.93 million raised from 51 deals in Georgia at the beginning of the year.

The region and state continue to report few exits, with only two reported in Q2 for an undisclosed amount --- a decrease from the five exits reported in Q1.

Across the board, Q2 was an "unprecendented" time for the VC industry, according to the PitchBook report.

"The lockdowns majorly disrupted general business practices in the VC industry, as investors have traditionally relied heavily on in-person meetings before making new investments," the report said. "Venture firms generally became much more conservative around dealmaking as the pandemic hit the US in March and early April, leading to a downturn in both VC invested and number of deals completed in Q2. Portfolio companies followed suit, adopting an understandably cautious outlook as they sought to reduce their burn rate through layoffs, cost-cutting, and curtailed expansion plans. With all that said, the impact on aggregate VC activity was hardly apocalyptic."

The slowdown seen in VC activity across the country occured in the earlier part of Q2, when the uncertainty of Covid-19 was at its peak.

"After the initial month and a half of exercising caution, triaging, and focusing primarily on stabilizing their own portfolio companies, VC investing began to pick up in May. While some sectors have been heavily affected by the pandemic, many startups, especially in the software and biotech sectors, have fared relatively well during the COVID-19 crisis, offering solutions to the healthcare, digital enterprise, and consumer services needs of the country. More eager investors have resumed seeking opportunities outside their current portfolios, adopting virtual methods to source deals, meet with founders, and execute investments. Valuations have not dwindled as much as many industry professionals expected, and the ample dry powder in the industry has allowed VCs to continue making investments—even large ones—during the second quarter," the report states.

Pitchbook also reports that startups that qualified for the Paycheck Protection Program and took the funds found them to be highly impactful at bridging financial gaps and supporting employees.

"Despite several positive trends in the latter half of Q2, uncertainty will persist in the next few quarters. There are still dark clouds looming on the horizon; whether they fade away or collect into a new storm could determine how the rest of 2020 unfurls for the entrepreneurial ecosystem," the report states.

Here are the top 10 Atlanta area deals included in the Q2 PitchBook-NVCA Venture Monitor report: