KPMG and CB Insights’ Q3 2015 quarterly VC report highlights continued buoyancy of private markets
Unicorn and $100M+ financing show no signs of slowing.
Market concerns about China, interest rates, and a tech bubble did nothing to abate the pace of investment into venture capital (VC)-backed companies in Q3 2015, according to Venture Pulse, the quarterly global report on VC trends published jointly by KPMG International and CB Insights. This quarter saw $37.6 billion invested across 1,799 deals marking another multi-year high for quarterly funding.
According to the Q3 2015 report, the first nine months of 2015 saw $98.4 billion invested into VC-backed companies, an 11 percent jump compared to all of 2014, which was a record year for VC-backed investment. The nine-month period also saw a 100 percent jump compared to all of 2013, which accounted for $49.3 billion invested.
“It’s been another banner quarter for VC investment around the globe,” said Brian Hughes National Co-Lead Partner, KPMG Venture Capital Practice, and a partner for KPMG in the US. “From North America to Europe and Asia – the total amount invested continued to rise in all regions of the world. Large mega round deals also gained steam, rising to a median value of almost $35 million globally and an incredible $100 million in China.”
● Q3 funding was driven by the continued strength of mega-round deals (those over $100 million in size) – 68 in total.
● Asia, in particular, showed significant gains, jumping to $13.5 billion in funding in the quarter – a 38 percent increase over Q2. By comparison, Europe saw $3.5 billion in financing and North America saw $20.3 billion in the same period.
● The median size of late-stage deals in the quarter globally was $35 million - a substantial increase from the $20 million median observed in Q3 2014.
● At 23, the number of new unicorn companies remained flat compared to Q2 2015.
● Aggregate deal activity fell to 1,799 deals, the lowest volume of deals since Q2 2013 – and substantially lower than the 1,928 deals seen in Q2 2015. The downward trend in deals volume was driven primarily by a slowdown in seed VC activity.
In addition to key findings for Q3 2015, Venture Pulse quarterly report series examines the state of venture capital investment globally and regionally, including key trends and analyses.
Anand Sanwal, CEO of CB Insights, commented: "Despite the chatter about an overheated market, the appetite for investment into fast-growing private startup companies remains insatiable. Q3 2015 marks another dot com level high for funding and this has become the new normal it seems. Investor FOMO (fear of missing out) continues to be a key driver of mega-financings and doesn’t look to abate anytime soon.”
Large mega-round deals (those over $100 million) continued to gain steam, with 68 in Q3 and 176 in 2015 year-to-date. This year’s mega-deals total $46.75 billion in funding so far, approximately 48 percent of the total funding received by VC-backed companies.
North American companies, primarily out of Silicon Valley, along with Asian companies were the main recipients of these large financings. In Q3 2015, North America saw 37 mega-deals, while there were 25 in Asia. Comparatively, Europe only had 6 mega-rounds.
Regionally, North America continues to lead global venture capital activity. With $59.0 billion invested in the first nine months of the year, the region has already eclipsed all of 2014, which saw $58.3 billion of funding.
Despite the growth in funding in North America, deal activity saw a material drop and hit levels last seen in Q1 2012. The drop in activity was driven by a continued shift away from seed deals. In Q3 2014, seed deals comprised 33 percent of all VC-backed company deals, while in the recent quarter, the percentage of seed deals fell to 23 percent.
Among the major markets for venture capital investment, Asia saw the biggest gains in total funding. In 2013, Asia saw $6.5 billion invested into VC-backed companies. In just the first nine months of 2015, this number has climbed to $28.4 billion – representing a 337 percent increase with one quarter remaining in the year. Asia’s biggest deals in Q3 centered on e-commerce, on-demand transportation companies, and fin-tech companies focused on payments.
Europe saw $3.5 billion in financing across 313 deals, compared to Q2’s $3.2 billion across 309 deals. Among the major markets, Europe had the highest share of deals at the seed stage – 40 percent of all deals - which may suggest good things for the market as these companies mature. According to the report, later stage funding is not as robust in Europe as it is in Asia and North America. The two largest markets within Europe – the UK and Germany – both had mixed quarters.
“Both deal volume and deal value rose significantly in Asia during Q3, led by China’s $3 billion Didi Kuaidi deal – the biggest deal globally in the quarter,” says Arik Speier, Head of Technology, KPMG Somekh Chaikin in Israel. “But, while VC investment has been substantial, we have noticed a trend in Asia – and in China in particular – toward more conservative investments. While VC investors are still quick to spend money, the level of interest appears to be softening.”
While Q3 2015 was consistent with Q2 2015, the quarter saw almost double the volume of new unicorns compared to the same quarter 2014. Seventeen new unicorns were in the United States and 3 in Asia. Among the quarter’s new unicorns were Thumbtack, Ele.me, Hellofresh, and BuzzFeed.
Robust corporate investment into VC-backed companies continued in Q3, with corporate VC participation climbing to 26 percent. Asia saw the heaviest involvement from corporations – with 32 percent of deals there involving corporations. While also significant, North America and Europe had less corporate VC involvement by comparison – at 23 percent and 21 percent, respectively.
CB Insight’s Sanwal commented: “At this point, traditional VC investors ignore corporate investors at their peril. When their portfolio companies need to scale and require significant investment, corporations, many having significant cash on their balance sheet and which may also offer strategic value, are now a clear and obvious partner on these investments.”
*Note: all figures cited are in USD
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