Venture Capital Activity Slid In 2016: KPMG Report

Venture Capital Activity Slid In 2016: KPMG Report

IPO market almost non-existent while corporate M&A drove exit value; First-time rounds hit lowest level in six years

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Deal Activity 16

After two strong years, both venture capital (VC) dollars invested and the number of deals in the United States declined substantially in 2016, according to Venture Pulse, a quarterly report on global VC trends published by KPMG.


Total VC investment in 2016 shrank to $69.1B after climbing from $68.9B in 2014 to $79.3B in 2015. Total deal count declined by more than 20 percent in 2016 to 8,136, from10,468 in 2015 and 10,550 in 2014.


Year-over-year quarterly comparisons also illustrate the continued lull in US venture investing. Relative to the final quarter of 2015, US VC investment fell by nearly 25 percent in Q4’16, while the count of completed financings slid by 27 percent.


“2016 was a reality check for the VC market,” said Brian Hughes, National Co-Lead Partner, KPMG LLP’s Venture Capital Practice. “Investors drew back considerably. They paused, re-evaluated and focused on their existing portfolios and gave greater scrutiny to deploying new money to both new and existing investments.”


To read the full Venture Pulse Q4’16 report, visit http://bit.ly/1ZYiceZ.


Unicorns and IPOs
The creation of both unicorns and IPOs was in short supply during 2016. In fact, the 2016 IPO market for VC-backed companies in particular is said to have been the worst since 2013. A bleak IPO market led to significant market skepticism of potential valuations.


There are indications, however, that the tide is turning for the IPO market. The success of Twilio, Coupa and others has spurred some optimism that the IPO market will open again in 2017. Snap, the parent company of Snapchat, has filed for an IPO which is expected toward the end of Q1’17. Other companies are also predicted to follow suit.


As the IPO market weakened in 2016, corporate M&A became even more crucial for venture investors’ liquidity prospects. The $42.4B in exit value achieved via that exit route was the second-highest tally of the decade, only below the massive $68.8B notched in 2014.

“With some of the uncertainty gone, optimism is growing within the VC market in the US,” said Conor Moore, National Co-Lead Partner, KPMG LLP’s Venture Capital Practice. “Economic indicators look reasonably good and it seems like it could be a strong year for IPO exits. If the expected exits materialize, they will put a lot of money back into the coffers of VC firms, which could loosen up VC investment dollars as well.”


Early Stage Seed Level
First-time financings in the US hit the lowest level last year since 2010 – with only 2,340 deals in 2016 – although the total of VC investment in those rounds remained substantial at $6.6B.

Additional findings:

  • The late-stage deal phenomenon of the past few years in the US appears to be cooling, although a median pre-money valuation of $145M at Series D or later is still 49 percent higher than in 2013.
  • Pharmaceuticals and biotechnology companies dominated the exit scene in 2016, its tally coming to $17.2B; exceeding software’s $14.1B for the year.

About KPMG International

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have more than 162,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

About Venture Pulse

The Q4 2016 edition of the Venture Pulse report produced by KPMG Enterprise’s Global Network for Innovative Startup, analyzes the latest global trends in venture capital investment data and provides insights from both a global and regional perspective. Data for the report provided by Pitchbook.

Contacts:

Rhena Wallace
KPMG LLP
O: 201.505.6462
C: 914.419.9892
rhenawallace@kpmg.com


Brandon Hatler
KPMG LLP
O: 201.307.8637
C: 201.638.5263
bhatler@kpmg.com

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