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Global analysis of
venture funding
11 April 2017
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Welcome to the Q1’2017 edition of KPMG’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. This edition takes a close look at some of the key
events in the first quarter and anticipate trends and opportunities in
venture capital investing for the remainder of the year.
Caution tempered investor activity throughout Q1, continuing the
trend from Q4’16. Global investor activity remained steady, if down
from the highs seen in 2015 and 2016, with numbers buoyed by large
deals in the US and Asian markets. The total number of deals
continued to decline.
The first quarter saw a continued focus on safer bets, resulting in
longer decision cycles and increased attention on late-stage deals in
most markets worldwide. In a related trend, Q1 has seen a continued
concentration of capital in a smaller number of large VC funds,
especially in the US and Europe, as investors reduce their risk
exposure by focusing on a broader range of investments over a long
fund lifespan. Angel and seed investment remained down in most
global markets, with new startups needing to demonstrate more than
a visionary idea to gain investor backing.
Despite continued lows, there are positive signs for a turnaround in
coming quarters. A significant buildup of dry powder in Asia and the
US, coupled with signs that the US IPO market may be opening,
bode well for activity during the rest of the year. Increasing clarity on
global issues, such as Brexitnegotiations following the triggering of
Article 50, potential US tax reform and the state of China’s economy
should also begin to strengthen investor confidence.
This edition takes a closer look at these and other global and regional
trends in this quarter’s Venture Pulse, including:
―Hot sectors, including deep tech, fintech and Internet of Things
(IoT)
―US investors’ impact in Latin America
―The effects of the Chinese government’s shifting priorities
―The opportunities of the growing medtechsubsector, especially in
the US and Europe.
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, please
contact a KPMG adviser in your area.
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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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33
49
US
72
Europe
101
Asia
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Activity decreases again, yet total VC invested enters a plateau
Globally, venture capital activity slid for the fourth consecutive quarter, from 3,201 completed
financings in the final quarter of 2016 to 2,716 in Q1'17, representing a decrease of 15.2%. Across the
same timeframe, however, total capital invested resurged, as $23.8 billion was invested in Q4 2016
and close to $27 billion in the first quarter of 2017. As the median transaction size worldwide has either
steadily ramped up or stayed flat over those same 2quarters, it is clear that investors’ appetite for
cutting deals did not wane, nor did the supply of capital available to deploy but, rather, they grew more
cautious.
Activity across the Americas varies
The Americas saw a decline in total deal volume, extending a trend that began in Q2’15. During the
quarter, non-traditional investors such as hedge or mutual funds continued to hold back on financings
of high-growth, late stage businesses. After a very strong 2016, VC investment in Canada dropped in
Q1’17. However, the Canadian Government’s recent announcements in support of VC may bode well
for the future. In Latin America, Mexican VC investment dropped off a cliff this quarter in what can likely
be attributed to uncertainty associated with potential US policy shifts. Total VC investment in Brazil was
solid in Q1’17, powered largely by a massive funding round to 99Taxis.
Outlier financings in the US, paired with first-time financings’ decline, suggest VC glut
No fewer than 497 first-time financings were logged in the US during the first quarter of 2017,
combining for a total of $1.6 billion in VC invested. In the same timeframe, overall US deal flow
diminished considerably to just over 1,800 completed rounds. Outlier financings led to an uptick in total
capital invested with total VC invested exceeding $17 billion. Analyzing these trends in tandem
underlines the narrative of increased investor caution paired with plenty of dry powder on hand.
European seed and angel rounds continue to drop
While deal value in Europe remained fairly steady in Q1’17 at $3.4 billion invested, deal volume
slumped to a five quarter low. Angel and seed stage deals volume continued to be the hardest hit, with
Q1’17 results remaining below the number of early stage VC investments for the second consecutive
quarter. Despite declining deal volume, corporate VC participation remained strong in Europe. In
Q1’17, corporates participated in 22% of all venture deals in Europe —the highest percentage seen
over the last 7 years. Q1’17 also saw strong investment into European VC funds, as exemplified by
London-based VC Atomico, which raised a massive $765 million fund. This and other similar fundraises
reflect a growing trend for capital to be concentrated in a smaller number of VCs with proven portfolios.
Asia sees slow start to 2017
After registering a record 2016 in terms of total capital invested (owing considerably to outlier
financings like that of Ant Financial) the Asia region has seen a historically healthy sum invested in the
first quarter of 2017. However, a decline in total venture activity that began in the final quarter of 2016
has only steepened, with the total number of completed financings dropping to the lowest quarterly
level since 2012.
All currency amounts are in USD, unless otherwise specified, data provided by PitchBook.
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