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Venture Pulse Q4 2016 Summary

Core Content

The Venture Pulse Q4 2016 report by KPMG Enterprise provides a comprehensive overview of the global venture capital (VC) market in 2016 and its potential trajectory in 2017. It highlights the ongoing challenges, shifts in investor behavior, and emerging opportunities across key regions: Asia, the Americas, and Europe.

Main Trends and Key Insights

Global VC Market Overview

• Global VC activity declined by 24% year-over-year in 2016, with 13,665 completed deals compared to 17,992 in 2015.
• Total global investment reached $127.4 billion, slightly below the 2015 peak of $140.6 billion, but nearly double the 2013 total.
• The IPO market saw a significant slowdown in 2016, but there were indications of a potential rebound in 2017, especially with companies like Snap filing for an IPO.
• Investor caution increased, particularly in late-stage deals, with a 15.1% year-over-year decline in median Series D+ financing size, though Series C deals increased by 13.1%.
• Valuations remained high, with the median Series B pre-money valuation reaching $39.6 million, nearly double the 2012 level of $20.8 million.

Regional Analysis

• Asia showed resilience in terms of total capital invested, with $39 billion in 2016, although deal volume dropped sharply.
• Americas and Europe experienced significant declines in both deal volume and deal value, with the Americas seeing a 33% drop in deal count and Europe a 33% drop in deal count as well.
• Europe demonstrated greater resilience in terms of capital investment compared to the other regions, with $16 billion invested in 2016, despite geopolitical uncertainty and the Brexit vote.

Investor Behavior

• Investor caution was a defining characteristic of 2016, with a focus on companies with clear paths to profitability and concrete business plans.
• Corporate VC participation grew, with 15% of all global venture activity involving corporate investors in 2016, reaching a decade high of $64.9 billion.
• Down-rounds increased for the first time in two years, reflecting greater risk aversion among investors.

Exit Opportunities

• Corporate M&A remained the primary exit channel for VC-backed companies, accounting for 84% of all exit value in 2016.
• Exit value declined by 26% year-over-year, with 5 consecutive quarters of decline in deal completions.
• The US IPO market was expected to open up in 2017, potentially boosting VC investment and liquidity.

Government Support

• Government initiatives in Europe, UK, Germany, and France aimed to support innovation and startups.
• The UK announced $400 million in venture capital funding through the British Business Bank.
• Germany and France planned a €1 billion fund to assist startups in growing beyond the seed stage.

Emerging Sectors

• Healthtech and biotech remained strong areas of interest, driven by the need for innovative therapies.
• Software continued to dominate VC investment, with companies like Uber disrupting traditional industries.
• Artificial intelligence, virtual reality, and data analytics were also expected to attract significant interest in 2017.

Future Outlook

• The report suggests a cautious optimism for 2017, with the potential for renewed interest in VC if the IPO market opens up.
• Unicorn rounds declined significantly, with only 6 such financings in Q4 2016, the lowest since the term was coined in 2013.
• Dry powder from 2016 will need to be invested, but companies must demonstrate profitability to attract capital.

Key Figures

• Global VC investment in 2016: $127.4 billion
• Global VC deals in 2016: 13,665
• Q4 2016 global investment: $21.8 billion
• Q4 2016 global deals: 2,809
• Corporate VC participation in 2016: $64.9 billion
• UK venture capital funding: £400 million
• Germany and France startup fund: €1 billion
• Hubei province investment: $81 billion
• Unicorn rounds in Q4 2016: 6

Conclusion

Despite the decline in deal volume and increased caution, the global VC market remained highly active in terms of capital investment. The IPO market is seen as a potential catalyst for renewed interest and liquidity in 2017. Corporate VC and government support are playing increasingly important roles, while healthtech, software, and AI are expected to be major investment areas in the coming year.