Investment into venture capital (VC)-backed companies experienced steep declines in the last quarter of 2015, amid an uncertain economic outlook and a slowdown in China, finds a recent report on global VC investment.
Market concerns around valuations, burn rates, and over-funding put the brakes on investment in VC-backed companies after a robust performance in the first three quarters, according to Venture Pulse, the quarterly global report on VC trends published jointly by KPMG International and CB Insights.
In Q4 2015, USD27.2 billion was invested across 1,742 deals globally, marking a 30 percent drop off in funding, and the lowest quarterly deal activity since Q1 2013. Deal volumes in China dropped 39 percent to 71 deals from Q3 and funding fell 29 percent to USD7.3 billion as turmoil in public markets and concerns about macroeconomic growth may have curtailed more sizable investments in Chinese startups.
Irene Chu, Partner and Head of High Growth Technology and Innovation Group, KPMG China, says: “While VC investments in startups has slowed, we see consolidation taking place, especially in China. On the deal front, there has been significant M&A activity this quarter such as mergers between travel websites, dating websites and restaurant booking and reviewing apps.”
Despite the slowdown in Q4, VC funding activities in the full year of 2015 hit a record high at USD128.5 billion, 44 percent more than 2014. A total of 7,872 deals of investment into VC-backed companies were recorded, down 3 percent from a year ago.
The analysis also highlights that Asian startups had a break-out year for investment activities in 2015, raising a total of USD39.7 billion (more than the previous four years combined) on 1,442 deals. China and India drove the bulk of the funding, with Chinese VC-backed startups raising USD27.4 billion in 2015, accounting for more than two-thirds of the Asian deal values, or over one-fifth of world’s total.
In terms of sectors, internet and mobile received the largest share of global VC funding (66 percent), followed by healthcare (10 percent). Higher preferences towards internet and mobile are found in the Asia market - the sectors attracted 80 percent of the VC-backed investment in the region.
Lyndon Fung, Partner, U.S. Capital Markets Group, KPMG China, says: “The Asian market is fluid and volatile compared to more mature markets. We are seeing Chinese VC investors and VC-backed companies shifting their focus to invest in the international market, where things are a bit more stable, to acquire complementary technologies to strengthen their ecosystem. Also, more investment in the US, Europe and Australia –across all sectors.”
The drop in VC investment signifies a shift in thinking as global investors seem to be taking a less bullish view of the market. A number of Q4 2015 IPOs falling short of recent private valuations appear to be making investors more cautious. Some investors have even moved to write down a number of their major VC investments in order to reflect fair market value. Investor caution will likely continue to impact VC activity heading into the first quarter of 2016, the analysis notes.
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KPMG Enterprise and CB Insights launch Q4 report on global trends in venture capital investment.