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Number of Venture Capital deals falls for fourth consecutive quarter

Bahrain venture pulse

Continued investor concerns over startup valuations, macroeconomic upheavals, the ramifications of Brexit, and an uncertain exit environment for portfolio companies translated into another down quarter for investment deals in venture capital (VC)-backed companies. According to Venture Pulse, the quarterly global report on VC trends published jointly by KPMG International and CB Insights, Q2 2016 saw USD$27.4 billion invested across 1,886 deals globally, representing a slight increase in total funding over Q1 2016 but a fourth-straight quarter of investor pull-back in activity. The total number of deals declined an additional 6 percent from Q1 2016, after reaching a high in Q2 2015.

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Bahrain – 26 July 2016: Continued investor concerns over startup valuations, macroeconomic upheavals, the ramifications of Brexit, and an uncertain exit environment for portfolio companies translated into another down quarter for investment deals in venture capital (VC)-backed companies.

According to Venture Pulse, the quarterly global report on VC trends published jointly by KPMG International and CB Insights, Q2 2016 saw USD$27.4 billion invested across 1,886 deals globally, representing a slight increase in total funding over Q1 2016 but a fourth-straight quarter of investor pull-back in activity. The total number of deals declined an additional 6 percent from Q1 2016, after reaching a high in Q2 2015.

The trends visible across major venture hubs were decidedly mixed. North America and Asia saw funding climb slightly across fewer deals, while Europe saw total investment drop 20 percent as deal count rose. Europe continued to show robust early and seed stage activity.

“It’s a challenging time for VC investors,” said Brian Hughes National Co-Lead Partner, KPMG Venture Capital Practice, and a partner for KPMG in the US.

“There’s a lot going on, with uncertainty dominant in every market. Many investors are holding back to see how these uncertainties shake out, while others are focusing on companies they see as having a solid foundation and growth plan – like Uber, Snapchat and Didi Chuxing.”

According to Ramachandran Narayanan, Partner and Head of Deal Advisory at KPMG Middle East and South Asia (MESA), the situation in the Middle East is quite different. “Although there are a number of emerging opportunities in the region, the size of funds being raised by Middle Eastern venture capital firms has always been modest in comparison with the US and Europe. However, it remains a promising sector with growing number of technology led companies in a region with young tech savvy population with high smartphone usage and internet penetration rates.”

“Currently, there is significant emphasis on entrepreneurship and startups funding, especially in the Gulf Cooperation Council countries, as part of their economy diversification plans. Governments have established funds and organizations to support Small and Medium Enterprises (SMEs) which makes VC investors far less attractive.” Mr. Narayanan added.

In addition to presenting key global findings for Q2 2016, the Venture Pulse quarterly report series examines the state of venture capital investment on a regional basis, including key trends and analyses for Asia, North America and Europe.  To download and read the report, please visit the link attached here.

Key Q2 highlights from the report:

  • Q2 funding saw a 5-quarter low in mega-round deals (those over $100 million in size) - 35 in total versus 40 in Q1 2016 and 63 in Q2 of 2015.
  • Global deal activity fell to 1,886 deals, the lowest volume of deals since Q2 2013 – and down 6 percent from the 2,008 deals seen in Q1 2016. Financing ticked up 3 percent to $27.4 billion, mostly buoyed by $1 billion-plus rounds to “decacorns” such as Uber, Snapchat and Didi Chuxing. Decacorns refer to private investor-backed companies with a private market valuation of greater than $10 billion.
  • The decacorn megarounds also lifted funding figures in North America and Asia – up 10 percent to $17.1 billion and 3 percent to $7.4 billion quarter to quarter, respectively. However, both regions saw noticeable declines in deal activity, with North America down 8 percent from Q1 while Asia fell 12 percent. Europe trended in the opposite direction, with deals climbing 5 percent but funding dropping 20 percent between Q1 and Q2.
  • After a marked decline in seed-stage deal activity to start 2016, Q2 saw seed share bounce back from 31 percent to 35 percent of all deals, driven by especially strong seed investment activity in Asia and Europe.
  • At 7, the number of new VC-backed unicorn companies that were born in Q2 is up from the 5 born in Q1 2016, but still well below the Q3 2015 peak when 25 unicorns were birthed.
  • After median late-stage deal size in Asia ballooned to $150 million in Q4 2015 and crashed below $75 million in Q1 2016, the region saw late-stage deal size bounce back to $100 million in Q2 2016.

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