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Global analysis of
venture funding
12 January 2017
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Welcome to the Q4’2016 edition of KPMG Enterprise’s Venture Pulse
Report –highlighting the current trends, opportunities and challenges
faced by the venture capital (VC) market, both globally and in key
regions around the world. In this edition, we reflect back on 2016 as a
whole and discuss what the future might hold for venture capital
investing in 2017.
After a relatively good start to 2016, caution took a strong grip on the
VC market, extending its hold throughout the remainder of the year.
Q4’16 saw further dips in both venture capital investments and, in
particular the total number of deals in the Americas, Asia and Europe.
While year-end numbers show 2016 lagging the peak deal values of
2015, the sharp decrease in the number of deals compared to last
year reflects ongoing investor concerns within the VC market.
Asia and the Americas continued to bear the brunt of VC investor
pullback during Q4’16, with sharp declines in the number of deals and
capital invested. This quarter Europe showed more resilience in
terms of total capital invested, despite the region facing geopolitical
uncertainty in a number of EU member states, in addition to the
uncertainties related to the UK’s Brexitvote. The region’s growing
diversity of technology ecosystems is likely one factor in the region’s
relative resilience, although its smaller size (compared to the
Americas and Asia) likely also had a moderating impact.
The US election was decided midway through Q4’16, ending a period of
uncertainty, while introducing new questions regarding how the change
in administration will affect regulatory and trade policy moving forward.
Despite the further drop in VC activity in Q4’16, there are signs that
the investment tide is turning and that investor optimism is growing. In
the US, there are indications that the IPO market is opening up
which, if realized, could renew interest in the VC market. The
significant amount of dry powder raised during 2016 will also need to
be invested, although it is expected that any investments will require
companies to have more concrete plans to profitability than they have
needed in the past. With corporates, particularly in Asia, now
recognizing the value of collaboration with startups, corporate VC is
also expected to grow further.
As global leaders meet this week at the World Economic Forum in
Davos, Switzerland, the importance of global collaboration and
responsible leadership is expected to be high on the agenda.
Innovation in today’s society cannot be managed in a vacuum. We
expect the lessons from Davos will help guide business leaders,
including VC investors, during the year ahead.
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Dennis Fortnum
Global Chairman,
KPMG Enterprise,
KPMG International
Brian Hughes
Co-Leader,
KPMG Enterprise
Innovative Startups
Network, Partner,
KPMG in the US
Arik Speier
Co-Leader,
KPMG Enterprise
Innovative Startups
Network, Partner,
KPMG in Israel
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We explore these and a number of other global and regional trends
in this quarter’s Venture Pulse Report. We also examine a number
of questions related to venture capital investment, including:
―Is the VC investment tide about to turn
―How have investor behaviors changed in light of 2016 trends
―Is the IPO market opening, particularly in the US
―What might 2017 have in store for VC investing
We hope you find this edition of the Venture Pulse Report insightful.
If you would like to discuss any of the results in more detail, contact
a KPMG adviser in your area.
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31
47
US
70
Europe
99
Asia
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5Q4VC2017KPMGInternationalCooperative(KPMGInternational”).KPMGInternationalprovidesnoclientservicesandisaSwissentitywithwhichtheindependentmemberfirmsoftheKPMGnetworkareaffiliated.
Global VC investment remains substantial, despite major decline in activity
Worldwide venture capital activity declined 24% year-over-year, with just 13,665 completed deals in
2016, compared to 17,992 in 2015. Despite the weakening activity, total venture capital investment
remained substantial, with $127.4 billion invested globally during the year. While the amount may be
below the peak of $140.6 billion invested in 2015, it is nearly double the total global VC investment
seen in 2013.
Asia holds steady year-over-year, while Americas and Europe slip
Unlike the other major regions, Asia’s total venture capital invested remained steady between 2015 and
2016, just eclipsing $39 billion each year. The Americas and Europe saw VC capital investment decline
significantly during the same period. In the Americas, VC investment dropped from $82 billion to $72
billion, while in Europe investment dropped from $18 billion to $16 billion. The decline in deals activity
was even more noticeable –with a drop from 11,208 to 8,642 deals in the Americas, and a drop from
4,378 to 3,142 deals in Europe. Across nearly all regions, investments at the angel and seed-stage
recorded quarter-over-quarter declines during 2016, with Asia in particular showing a sudden downturn
in angel and seed-stage investment between Q3 and Q42016.
Deal metrics suggest investors are still willing to pay up
In 2016, median deal sizes remained high across virtually every series of VC financing.Globally, the
median Seed investment and Series A investment both increased in size from 2015, while the median
Series B investment held steady at approximately $12 million.In terms of later stage deals, while the
median Series D+ investment declined somewhat, from $35 million to $30 million, it remained far
higher than in years preceding 2015 and double 2011’s median investment. It’s clear that while there
was a slight increase in investor caution for late-stage deals, investors were still willing to pay up for the
right opportunities.Moreover, valuations remained near decade highs.Worldwide, the median Series
B pre-money valuation stood at $39.6 million in 2016, close to twice the $20.8 million logged in 2012.
US sees a significant year-over-year slide in first-time financings
High prices had an effect on the level of first-time financings during 2016, with the most highly valued
markets experiencing another year-over-year decline. For example, the US recording a decrease from
3,331 closed first-time fundingsin 2015 to 2,340 during 2016–a slide of nearly 30%. Notably, even in
the expensive climate, corporate venture arms participated in nearly 15% of all venture activity during
2016 worldwide, the combined value of all such financings hitting a decade high of $64.9 billion.
Corporate M&A accounts for the bulk of exit value in 2016, but declines quarter-over-quarter
Liquidity for venture investors remained on the wane. Exits declined further from the decade high
reached in 2014, with year-over-year decreases of almost 26% by count and 13% by value worldwide.
Quarterly data reveals a nearly 5 quarters straight slide in completed sales of venture-backed holdings
globally. On a brighter note, until the final quarter of 2016, most regions saw less of an impact on
quarterly tallies of exit value. For example, the 5 quarters from Q32015 to Q32016, inclusive, each
eclipsed $18 billion in global VC-backed exit value. Corporate M&A continued to account for the bulk of
all VC-backed exit value at 84% in 2016 alone, for a total of $58 billion. However, quarterly data
reveals a slow but steady slide in corporate M&A, which could suggest a period of lessened liquidity for
VC firms unless other exit options arise.
Big disparity in fundraising activity regionally, with Europe showing seven year high in VC
raised
Venture fundraising activity differed greatly between the key regions in 2016, with the global markets
standing at 372 pools of capital combining for $64.4 billion. In the Americas, the US experienced
relatively steady fundraising totals, recording 255 closed funds for 2015 and 253 for 2016, although
mega-vehicles drove last year’s total VC committed to $41.6 billion. Worldwide, the trend of more
money flowing to larger VC managers continued, with Europe, in particular, seeing a seven-year high
of $10.5 billion raised across a seven-year low of 62 closed funds in 2016.
All currency amounts are in USD, unless otherwise specified, data provided by Pitchbook.
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