Global VC investment will likely continue to fall throughout the final quarter of 2022 as Q3 sees the third consecutive drop in deals and funding value while signs indicate increased conservativism amongst investors amid rising fears of a global recession.
According to the Q3’22 edition of Venture Pulse—a quarterly report published by KPMG Private Enterprise that analyzes key VC deals and trends worldwide—global VC funding fell to a nine-quarter low of $87 billion in Q3’22; levels not seen since 2020 in the Americas, Europe, and Asia.
The decline in deals was even more marked during the quarter, with just 7,817 VC deals globally—the lowest volume since Q4’17.
“Significant market volatility, ongoing geopolitical and economic turmoil, including fears of a recession, have led to a continued and significant cooling of global VC funding,” said Jonathan Lavender, global head, KPMG Private Enterprise, KPMG International.
“Despite five deals closing with values over $1 billion, the VC environment has seen the overall number of deals drop to its lowest levels since 2017 and the value of those deals slump to mid-2020 levels; the peak of the pandemic and lockdowns,” he added.
VC investment in Asia drops further
VC investment in Asia fell for the third straight quarter in Q3’22, sinking from $26.6 billion in Q2’22 to $21.7 billion. After falling to a multi-year low of $10 billion in Q2’22, VC investment in China rose to $12.9 billion in Q3’22.
Other jurisdictions, meanwhile, saw VC investment plummet. In India, VC investment dropped more than 50%—from $7.5 billion to $2.6 billion quarter-over-quarter, while VC investment fell from $1.6 billion to $1.2 billion in Japan and $1.1 billion to $746 million in Australia.
While annual fundraising reached $220 million at the end of Q3’22, on track to rank as the second highest year for fundraising ever next to 2018, VC investors were more critical with their investments. They were becoming increasingly cautious, placing a laser focus on profitable companies and those with sustainable business models or market-leading innovators, such as SpaceX, which closed $1.9 billion in capital.
Consumer-facing companies such as e-commerce and food delivery groups are losing traction amongst investors. Rising inflation, climbing interest rates and recessionary concerns are raising questions about a potential shift in consumer buying behaviors.
However, a growing energy crisis, particularly in Europe, the continued effects of the pandemic and increased pressures on businesses means some sectors remain of high interest to investors. Clean energy, fintech, biotech, cyber and B2B, including AI and machine learning start-ups and scale-ups, continue to be popular.
Conor Moore, head of KPMG Private Enterprise in the Americas Region and leader of KPMG Private Enterprise Emerging Giants Network, KPMG International, commented, “It’s not doom and gloom for all start-ups and scale-ups. However, increased conservatism and caution from investors and an overall tighter landscape may push many to consider alternative financing sources.”
“Late-stage companies have recognised that funding priorities have shifted dramatically and that if they want to attract investment, they will need to focus on their profitability story,” he added.