Venture capital (VC) deal volume continued to fall in Q1’ 2017 with only 2,716 deals completed globally during the period compared to 3,201 in Q4’16, according to Venture Pulse Q1 2017 – the quarterly global VC trends report published by KPMG Enterprise.
Despite the fourth straight quarter of declining deal activity, VC investment grew to US$26.8 billion in Q1’17.
The increase in funding was strongly affected by a resurgence in mega-deals, including Airbnb’s $1 billion+ Series F round, and Grail’s $914 million Series B tranche.
Globally, the Americas led VC investment, accounting for $17.8 billion. The US made up the lion’s share, with $17.3 billion invested. In Asia, VC investment grew slightly quarter over quarter to $5.6 billion, while in Europe investment remained relatively flat at $3.4 billion.
While VC deal activity in Q1 continued to decline globally, we may have reached a turning point,” said Brian Hughes, National Co-Lead Partner, KPMG Venture Capital Practice, and a partner for KPMG in the US.
“Market conditions and valuations are stabilizing. In addition public markets have been relatively strong and there have been a number of solid tech IPOs late in the quarter that indicate that the IPO market, particularly in the US, is opening. With the amount of dry powder in the market, the likelihood of deals activity accelerating over the remainder of the year is quite high.”
Global VC investment rose from $23.8 billion in Q4’17 to $26.8 billion in Q1’17, a solid increase buoyed by a number of $100 million+ mega deals.
Global median deal size at early VC financing stages continued to increase, with median Series B funding hitting $14 million, Series A $5.7 million, and seed stage $1.4 million.
Pharmaceuticals and biotechnology saw an explosion in the percentage of overall VC investment in Q1’17, with companies raising $3.9 billion during the quarter across 188 financings, compared to the $11.4 billion raised throughout 2016.
The number of deals with corporate venture participation slid for 2 consecutive quarters but given the overall decline in venture financing volume, the percentage of overall financings in which they’ve participated hit its highest level since early 2007.
After reaching a 12 quarter low in Q4’16, the number of global unicorn financings rose slightly in Q1’17 to 14.
California-based companies (i.e. Airbnb, Grail, SoFi, and Instacart), and China-based companies (i.e. NIO, Ofo, Hive Box Technology and Kuaishou Technology) dominated the top 10 global VC deals rankings during the quarter. Ola in Bangalore, India and Mobike in Singapore rounded out the list.
Unicorns emerge in Asia despite slow quarter
Investors in Asia remained cautious in Q1’17, with the number of VC deals plunging for the second straight quarter. Despite the declining number of deals, investment in the region grew slightly, helped by six $250 million+ mega deals.
A number of unicorns also appeared during the quarter, with China’s Ofo and URWork, as well as Paytm in India, each surpassing the billion dollar valuation mark during Q1’17.
Corporate VC continued to be a strong component of VC investment in Asia during the quarter, as more and more traditional corporates recognized the growing imperative to innovate.
VC deals in US remain stable as investment buoyed by large deals
VC investment in the US rose quarter over quarter buoyed by a number of $250 million+ megadeals. Meanwhile, deal activity remained relatively steady quarter over quarter, suggesting that investors remained cautious as Q1’17 brought with it a change in the US administration.
Looking ahead, solid IPOs by Snap – the company behind Snapchat, and software-as-a-service companies MuleSoft and Alteryx suggest the US IPO market may be opening. If this trend continues, there could be a renewal in US-based IPO activity.
In the Americas more broadly, VC investment in Canada was down, likely a result of a natural reversion to the mean following a record 2016.
Mexico also experienced a slide as a result of investor anxiety around US trade and immigration policies. Brazil, however, held steady in terms of VC invested, helped by a $100 million raise by 99Taxis.
Investment in Europe holds steady as deals numbers plummet
Deals activity in Europe slumped to a five-quarter low, leading to a 45 percent drop between Q1’16 and Q1’17. Despite this decline in deal activity, VC investment remained relatively robust in the region, with $3.4 billion invested – only a marginal decrease compared to Q4’16. Corporates participated in 22 percent of all venture deals in Europe –the highest percentage seen over the last 7 years.
Expected clarity on government policies and activities could renew VC interest
Looking ahead to Q2’17 and beyond, investor caution is expected to linger across most regions. However, positive signs indicate that the VC market may be poised for a more substantial rebound as government positions in the US and Europe become clearer.
“2016 was rife with uncertainty,” said Arik Speier, Head of Technology, KPMG Somekh Chaikin in Israel. “With the new US administration in place and the UK having triggered Article 50 to initiate Brexit, we expect to see more clearly defined government policies in those jurisdictions in the coming year. This, combined with the amount of cash reserves in the market, will likely lead to increasing VC activity over the course of the year.”