Global venture capital investment dropped from $81.4 billion across 9,563 deals in Q2’23 to $77.05 billion across 7,435 deals in Q3’23 as VC investors remained cautious and took much longer than in previous quarters to make deals. They also intensified their due diligence on business models and the prospects for profitability of start-ups seeking funding. This quarter's edition of KPMG Private Enterprise's Venture Pulse, a quarterly report that highlights VC investment trends globally and in key regions around the world, showed multi-year lows in both deal volume and total global investment. Specifically, VC investment in Q3'23 was the lowest since Q3'16, and VC deal volume was the lowest since Q2'19.
The report indicates that Europe was able to defy the decreasing trend, drawing $17.3 billion in Q3’23 as opposed to $16.4 billion in Q2’23, In terms of regional investment. This occurred despite a decline in deal volume from 2,454 to 1,671 during the same period. Two $1 billion+ megadeals accounted for more than the difference in investment quarter-over-quarter. The two megadeals highlight the incredible strength of the cleantech market in terms of attracting large VC investments.
It noted that VC investment in other regions of the world was quite weak compared to recent historical norms. In the Americas, VC investment dropped to $38.6 billion—its lowest level since Q4’19; the US continued to account for the majority of this investment ($36.7 billion). VC in the Asia-Pacific region, meanwhile, dropped to $20.3 billion—its lowest level since Q1’17.
Exit activity provided a glimmer of hope for the global VC market in late Q3’23—with exit value reaching $82.8 billion in Q3’23. The positive exit activity was particularly noticeable in the US, where exits have been incredibly few and far between since Q4’21 when exit value was $198 billion. After three straight quarters of under $10 billion in exit value, the US saw an increase to $35.8 billion in Q3’23.
- VC investment in Europe rose from $16.4 billion to $17.3 billion quarter-over-quarter.
- The Americas accounted for $38.6 billion in VC investment in Q3’23 (a drop from $39.8 billion in Q2’23). The US accounted for $36.7 billion of this total – down from $37 billion in Q2’23.
- VC investment in the Asia-Pacific also dropped from $24.2 billion in Q2’23 to $20.3 billion in Q3’23.
- Global Corporate VC-participating investment grew only slightly from $39.1 billion in Q2’23 to $40.4 billion in Q3’23.
- Global unicorn deal value barely increased but stayed at a low level, accounting for just $15.8 billion in Q3’23—the lowest quarter for unicorn deals in over six years.
- Exit value grew from $53.3 billion in Q2’22 to $82.8 billion in Q3’23.
The report added that Cleantech, including EV, accounts for more than half of the largest VC deals in Q3’23. Cleantech continued to attract many of the largest deals this quarter. Three China-based EV companies were also among the largest deals this quarter. Investor interest in AI continues to accelerate
AI continued to attract increasing interest from VC investors globally and across regions, it noted.
“So far AI has dominated the headlines in 2023, but as we head into Q4’23, will Cleantech begin to rival AI?” said Jonathan Lavender, global head, KPMG Private Enterprise, KPMG International. “The green space is evolving rapidly and Cleantech and related energy independence, are pulling in large financings globally. Legislation ranging from the US Investment Reduction Act to large subsidies, tax breaks, and regulatory overhauls in Europe are increasingly capturing the attention of accelerators looking to support start-up ecosystems in this high growth sector.”
Nitish Poddar, partner and national leader of private equity, KPMG in India said, “VCs have been quiet with new investments and were looking at portfolio consolidation in the past few quarters. However, we are seeing green shoots of deal activity and expect a strong increase in the next 3-4 quarters. Path to profitability and positive cash flows will continue to be key KPIs”.
Steady course expected in Q4’23
The report anticipates that the VC investment is expected to remain relatively soft heading into Q4’23, given ongoing uncertainties in the global VC market and a heightened level of investor caution. Energy, cleantech, and AI, however, are expected to remain highly attractive to VC investors across much of the world.
The major question heading into the end of the year is whether there will be any additional IPO activity in the wake of the three IPOs in late 2023. Although a dramatic reopening of the IPO market, as per the report, is not expected, additional exits could spark a renewal in IPO activity heading into the first half of 2024.