Global Venture Capital (VC) investments sank from $531.4 billion across 51,894 deals in 2022 to $344 billion across 37,808 deals in 2023 amidst a thematic backdrop of geopolitical, macro-economic, and other challenges, including geopolitical conflicts, high interest rates and inflation, a parched exit environment, and ongoing concerns related to start-up valuations, Q4’23 edition of KPMG Private Enterprise Venture Pulse report observed.   

The report, published quarterly, highlighted that America accounted for more than half of VC investment this year ($183.6 billion), while the Asia-Pacific region attracted $92.4 billion and Europe $62.3 billion, last year.  

The last quarter of 2023 was tough for the venture capital market, with global investments dropping to $74.9 billion, the lowest since mid-2019 and late 2016. Europe saw a significant decrease from $18 billion to $13.8 billion, and the Asia-Pacific region also experienced a decline to $18.8 billion, the lowest since early 2017.  

In the last quarter, global venture capital investors urged their supported companies to cut costs and prioritise making a profit. This led to a slowdown in both the amount of money invested and the speed of deals, the report added.  

However, a positive note was the strong interest in artificial intelligence (AI). Investments in AI-focused start-ups were very active, with three start-ups securing funding rounds of over $1 billion each during this quarter.  

“The exit values in 2021 for VC-backed companies stood at a massive $1.5 trillion. Since then, exits have faltered—with only $225 billion in exit value this year,” said Conor Moore Global head, KPMG Private Enterprise, KPMG International.   

Commenting on the India findings, Nitish Poddar, partner and national leader, Private Equity, KPMG in India said, “Indian economy is quite strong — capital markets at an all-time high, favorable demographics, strong GDP and a stable and active central government. However, the VC investments in the last few quarters have been muted as compared to quarters before. This is not an indication of slow down but the post COVID-19 euphoria dying down where there was excess money supply in the system.”   

AI, The Big Winner In Q4’23 

VC investment in AI continued to accelerate in Q4’23. In the US, AI-focused companies attracted six of the ten largest VC deals of the quarter. Europe also saw three very large AI deals. 

Subdued Start Expected For Global VC Market In Q1’24 

Due to high interest rates, ongoing global conflicts, and uncertainty about a fully reopened IPO market in the first half of 2024, global venture capital investment is expected to stay low in Q1'24.

However, investments in artificial intelligence (AI) are anticipated to remain appealing throughout the year. Additionally, there might be an increase in merger and acquisition (M&A) activity as opportunistic buyers seek advantageous deals.