Total venture capital investment globally reached US39.4 billion in Q3’17
Total dollars invested resulted in the second largest third quarter ever
Early stage startups struggle to secure seed funding as VCs prefer late stage deals
Competition for quality deals causes median valuations to soar
Total venture capital investment globally reached US39.4 billion in Q3'17, the fourth highest quarterly total capital invested since 2010, according to Venture Pulse Q3 2017 a quarterly report on global venture capital investment from KPMG Enterprise. While total investment remains strong, the total number of deals dropped yet again, reaching levels not seen since 2011 as investors around the world continued down a disciplined path of investing, placing fewer bets on angel and seed round opportunities, and deploying higher amounts of capital to a more select group of companies.
Following in the footsteps of Q2'17, the US continues to dominate VC investment, accounting for $21.5 billion, followed by Asia ($12.3 billion) and Europe ($4.7 billion). A majority of the investments continued to fund mega-deals during the third quarter, including US-based WeWork ($3 billion), and China-based Toutiao ($2 billion) and BAIC BJEV ($1.6 billion). The top 10 deals globally together accounted for $9.86 billion in funding. China accounted for half of the biggest deals globally. Although European deal value rose by 9.2 percent quarter over quarter and included four $100 million+ mega-rounds during Q3'17, only one Europe-based deal made the global top 10 list this quarter.
With strong competition for high quality deals, median valuations continued to hold steady at all stages of funding. After a decline between 2015 and 2016, the median round size for the latest stage --Series D or later --soared once more in 2017 to date to its highest tally ever of $40 million.
Corporate venture capital (CVC) continues to be an important source of financing to watch,” said Brian Hughes, National Co-Lead Partner, KPMG Venture Capital Practice, and a partner for KPMG in the US. “In Q3, 17.7 percent of worldwide venture financings included a corporate venture arm. CVC has morphed from a niche of the VC world to a vehicle for corporations across all industries to inject innovative ideas and technology into their existing products and services. Looking forward, we expect to see CVC participation continuing to increase.”
Despite a fall in the number of deals in the US, capital investment remains strong and steady at $21.5 billion, which compares well with the record high of $23.4 billion invested in Q2'16 and $22.9 billion invested in Q2'17. Deal sizes continue to soar, with top US funding rounds exceeding well over $100 million, including $3 billion by WeWork, $615 million by Intarcia Therapeutics and $351 million by SpaceX.
Corporate VC is playing a growing role in US fundraising activity as they now account for nearly 16 percent of deals across all sectors. Investing in startups is now viewed as a less risky approach than implementing costly internal R&D initiatives.
Exits by way of IPOs remain below expectations, though their numbers have increased since the lowest quarters of 2016. This likely reflects the increased investment in late-stage initiatives, which may be delaying the move to go public.
The low volume, high valuation phenomenon continues in Europe, where deal counts continue to drop, particular for early stage investments. Investors are becoming particularly selective with their funding options and are opting to back late-stage initiatives. This move is boosting the median value of these late- stage deals, as can be seen in the number of $100 million+ ventures. The UK bucked this trend, recording a near record $1.9 billion in capital invested. While deal volume continued to decline in concert with overall trends, several large financings boosted the UK to a stellar quarterly investment total. The top four European deals during Q3'17 combined for a total of more than $900 million dollars -with $385 million to Deliveroo, $240 million to Prodigy Finance, $169.5 million to Sound Cloud, and $165 million to Tricentis.
Corporate VC activity has achieved a new peak at more than 21 percent in Europe, focusing on late-stage initiatives that can help companies diversify their product lines and service offerings. As a result, early-stage projects are struggling to find the financing they need to get initiatives off the ground. Activity on the IPO front continues to quiet, dropping to levels reminiscent of 2010-13 as maturing startups look toward large deals to support their growth.
China continues to dominate the Asia market, with 10 out of the top 12 deals, garnering a $10.2 billion share of $12.3 billion dollars worth of investment this quarter. Asia is the only global region where the number of late-stage transactions outnumbered angel and seed rounds in Q3'17.
Corporate VC participation remains high in Asia as Chinese powerhouses Alibaba, Tencent and JD.com are all actively investing in promising startups, particularly in Southeast Asia and India, as well as Europe.
“Overall the trends are consistent around the globe. We're seeing a drop in the volume of deals as investors offset risk by funding later-stage initiatives that show promise for opportunities to monetize the technology,” said Arik Speier, Head of Technology, KPMG Somekh Chaikin in Israel. “As investors become more selective, it increases the competition for the top choices and drives median value. Meanwhile, early stage startups are being forced to work harder and show stronger results to obtain that first seed funding. The move to focus on high quality projects should work out well for investors in the long run.”
The Q3 2017 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. KPMG Enterprise has expanded the scope of Venture Pulse; this edition of the quarterly series provides in-depth analysis on the lifecycle of venture capital investments across the Americas, EMA and ASPAC, including a look at investment activity such as valuations, financing, deal sizes, mergers & acquisitions, exits, corporate investment and industry highlights.
*Note: all figures cited are in USD; data for the report provided by PitchBook.
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