KPMG Venture Pulse 2017 Q4

Jul 14, 2018 | Publisher: Techcelerate Ventures | Category: Business & Economics |  | Collection: Investments | Views: 8 | Likes: 2

1 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Venture Pulse Q4 2017 Global analysis of venture funding 16 January 2018 2 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Welcome message Welcome to the Q4'17 edition of KPMG Enterprise's Venture Pulse Report a quarterly report highlighting the key issues, trends, and opportunities facing the VC market globally and in key jurisdictions around the world. A robust Q4'17 propelled total annual global VC funding to $155 billion, the highest tally of the decade. A number of billion-dollar mega-deals over the course of the year, including six $1 billion+ rounds in Q4, drove the significant funding upswing. VC funding was up year-over-year across all regions, including Asia, the Americas and Europe. Meanwhile, the number of deals continued to decline globally during Q4'17, reflecting a shifting investor focus on quality over quantity. Rather than invest in a myriad of different companies, investors at all deal levels have leaned toward placing bigger bets on a smaller group of companies they feel have the strongest path to profitability/potential. While the software sector continued to attract the bulk of VC funding, the biotech and healthech sectors experienced strong growth this year, with pharma & biotech companies alone raising a record high of over $16 billion in VC funding globally. Heading into 2018, the VC market is expected to remain robust, particularly in areas such as AI, biotech, agtech and autotech. With many companies choosing to stay private longer, 2018 is also expected to bring an increase in secondary market activity in order to provide some liquidity to early-stage investors. There is also likely to be a modest increase in IPO activity, particularly in biotech. In this quarter's edition of the Venture Pulse Report, we examine both annual and Q4'17 VC market trends, including: The increase in deal size across all deal stages The rapid upswing in healthtech and biotech The growing focus on cross industry innovation and applicability The rapid evolution of France as an innovation center. We hope you find this edition of the Venture Pulse Report insightful. If you would like to discuss any of the results in more detail, please contact a KPMG Enterprise adviser in your area. KPMG International Cooperative ("KPMG International"). KPMG Internatio l provides no client services and is a S iss entity ith hich the independent e ber fir s of the netork are a filiated. You know KPMG, you might not know KPMG Enterprise. KPMG Enterprise advisers in member firms around the world are dedicated to working with businesses like yours. Whether you're an entrepreneur looking to get started, an innovative, fast growing company, or an established company looking to an exit, KPMG Enterprise advisers understand what is important to you and can help you navigate your challenges no matter the size or stage of your business. You gain access to KPMG's global resources through a single point of contact a trusted adviser to your company. It's a local touch with a global reach. Jonathan Lavender Global Chairman, KPMG Enterprise, KPMG International Brian Hughes Co-Leader, KPMG Enterprise Innovative Startups Network, KPMG International, and Partner, KPMG in the US Arik Speier Co-Leader, KPMG Enterprise Innovative Startups Network, KPMG International, and Partner, KPMG in Israel Contents 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global Overall VC investment closes on a high, deal volume continues to fall Year-over-year median deal size rises across all stages Global median pre-money valuation for series D+ peaks at $275 million for 2017 Corporate VC participation reaches 18.7% Global volume for first-time venture financings plummets in 2017 6 Americas Overall VC investment hits record high in Q4 Deal volume drops for the second consecutive quarter 2017 Series D+ median valuations spike to $250 million Canadian venture deal volume plummets deal values remain strong Venture financing in Brazil strengthens, powered in part by fintech 25 US Strong Q4 propels annual investment to new high 2017 deal volume more resilient than Asia or Europe Median pre-money valuations notch a new high for the decade Corporate VC involved in $10+ billion for second consecutive quarter Fundraising cycle signals it's ready for a slowdown 38 Europe Venture investment reaches new highs with massive Q4 Angel/seed investment continues to plummet Corporate VC participates in 21% of all deals a new high UK leads the way with over $2.5 billion invested in Q4, highlighted by Deliveroo's $482m VC in France sees banner year 58 Asia Q4 investment surpasses $15 billion Year-over-year volume of angel/seed deals plummets Corporate participation reaches over 30% for the year India experiences seven transactions over $100 million in value in 2017 Government support, CVC and big tech investors push venture financing in China to new levels in 2017 84 4 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Q4'17 summary Deal volume declines gently as capital invested continues to climb The final quarter of 2017 set a new quarterly high for total VC invested worldwide, at nearly $46 billion. This sum comes close to Q3'15 and Q2'16 tallies, which saw $46.5 billion and $47 billion+, respectively, yet also coincided with another slight decline in the total number of completed financings. Accordingly, the strength of venture funding is still primarily exhibited by a concentration at the larger, later stage of financings, which further implies the continued influence of the vast inflows of capital committed to the venture asset class over the past few years. The late-stage has never been more prominent, signaling a large proportion of mature, growth- stage VC-backed companies that want to stay private 2017 has been marked by massive financings, many of them occurring in China. Yet, the yearly total only further emphasizes how much of an effect gamechangers such as SoftBank's Vision Fund have had, with over 70% of all VC invested in 2017 worldwide concentrated in rounds of $25 million or more. In terms of transactional volume, such $25 million+ rounds are closing in on 10% of the global market, which is an unprecedented portion. Valuations close the year at a new high, due to competition and concentrated capital Although concerns around the level of valuations persisted or became even more pronounced in 2017, venture-backed companies still enjoyed one of the most lucrative climates in history, with the late-stage driving an overall increase in median pre-money valuations to a new high for the decade. Although the late-stage typically draws all the attention due to how eye-popping the checks can be, early-stage valuations are also persisting at high or record levels, signifying that the entire capital stack of VC funding has been affected by the sheer amount of money allocated to the class. Looking forward, at the very least, a plateau in early-stage figures is to be expected on the bullish side, while it is possible that numbers will begin to deflate slightly as investors and company founders alike re-center expectations. Europe sees pronounced effects of VC inflation Q4'17 saw the highest quarterly tally for VC invested in Europe-headquartered companies, just barely outstripping Q3'15. Moreover, this occurred even as overall transaction volume slid for the third-straight quarter. A more stark microcosm of global venture trends, Europe is still both benefiting and suffering from a relatively more fragmented venture market. Certain metro areas are still hotspots of activity and seeing higher and higher sums invested while round counts steady, yet other areas are seeing the effects of round size and valuation inflation, with accompanying fewer financings. Third-highest quarter of VC invested ever in Asia Similarly to Europe, key metro areas in a few countries are powering the Asian region's overall venture scene, with Beijing emerging as most prominent in 2017 by a sizable margin. Overall, $15.5 billion was invested in Asia in Q4'17 alone, easily the third-highest tally ever, and once again owing primarily, to mega-rounds. Three venture rounds of $1 billion or more were completed in Q4, all of China-based companies, which speaks to the extent government-affiliated investment corporations (as well as private corporations) are backing the nation's flourishing technology scene. All currency amounts are in USD, unless otherwise specified, data provided by PitchBook. 5 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Q4'17 summary Corporate participation signals the evolution of the VC industry Over the past year, the percentage of global VC activity that had corporate venture capital (CVC) participation rose to a new high, exceeding 18.7% in the final quarter of 2017. There are many reasons for this historic level, ranging from younger technology corporations' desire to remain exposed to all relevant innovations within their given fields of operation as well as older multinationals and industry stalwarts finally spinning out supplemental R&D efforts into CVC arms in order to capitalize on advances that are finally coming to fruition, such as autonomous vehicles. Yet, the primary effect is to further render early-stage VC investing more sophisticated, as corporate players look to corner promising advances or pave the way for merging down the road even earlier in company lifecycles. The fundraising cycle begins to wind down After climbing for 3 straight years in terms of capital raised, numbers of fundraising looks set to finally decline by a significant margin in 2017. Although the $47 billion+ raised still outstrips past years to be robust on a historical basis, volume is down by a more appreciable amount, with over 300 funds closed as opposed to 400+, which the past 3 years each achieved. After such strong fundraising for years, it is likely many large limited partners have met their desired private equity (including VC) allocations. It is also worth noting that, especially at the early-stage, fundraising demands an ever more niche focus, and there is simply a finite supply of general partners that can raise a fund solely dedicated to backing AI-focused startups at the seed stage, for example. Exit cycle subsides further As the year closes, it is easier to place 2017 totals against full-year tallies from the past decade for context and rely on quarterly figures for indications of momentum. For the third year in a row, exits were down by both count and value, with the latter relatively more resilient, thanks to a still-strong, matured M&A cycle. The key implications of an exit cycle's typical downtrend are various, however, timing is especially critical, given the level of inflation seen in the current venture market. Public capital markets will likely remain the best if not only option for many large, late-stage venture-backed companies, such as Pinterest or Airbnb. However, there is still opportunity for M&A at significant scale, given how persistently healthy that cycle has been. It remains to be seen whether 2018 will see a final return to health for IPOs. It will remain a tenuous balance between how accessible private capital is for embattled giants, and their need to finally achieve liquidity or further financing via traditional exits in the year to come. The former will probably predominate, mainly because secondary markets for early employees' and potentially investors' shares, as well as later rounds, are able to provide some forms of liquidity and circumvent more common methods. All currency amounts are in USD, unless otherwise specified, data provided by PitchBook. Globally, in Q4'17 VC-backed companies raised $46B across 2,662 deals 7 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global VC investment hits record annual high A strong Q4'17 across the Americas, Asia, and Europe helped propel the global VC market to a record high level of annual investment for 2017 of $155 billion. A number of multi-billion-dollar mega-deals during the quarter buoyed investment levels despite the continuing decline in deals volume across all deal stages. US dominates VC market globally The United States continued to lead the VC market globally in Q4'17, accounting for well over $23 billion of investment during the quarter, although both Asia and Europe had strong quarters of their own, with $15 billion and $5 billion invested, respectively. China sees largest VC deals of the quarter, mega-deals blossom worldwide Asia saw the largest deals of the quarter, including $4 billion mega-deals to Chinese companies Didi- Chuxing and Meituan-Dianping. AI-focused company Nio also raised $1 billion in Series D funding. The US also accounted for three $1 billion+ funding rounds (i.e. Lyft, Grail, and Faraday Future), making this one of the best quarters ever in terms of the number of $1 billion+ mega-deals. VC market continues to see decline in number of angel and seed stage deals During Q4'17, the volume of angel and seed stage deals continued to decline, highlighting a long-term trend that began 3 years ago. Every major region of the world has been affected by this trend. The long- term decline can be attributed partly to VC investors focusing on a smaller number of companies that they feel have the best potential, although the decline in funding to software-as-a-service companies, also likely had an influence. Despite the declining number of angel and seed deals, median deal sizes for early deal stages continued to be robust, suggesting that while fewer deals are occurring, the companies being funded are of high quality. Aging unicorns, availability and size of late-stage funding signals companies are staying private longer This year, there were 93 fundings of current and newly minted unicorns (companies with a valuation over $1 billion) created, exceeding the 77 fundings during 2016. At the same time, the average age of unicorn companies rose to 8.8 years, a trend that highlights the propensity of late-stage companies remaining private much longer as a result of the continued availability of late-stage funding. Given the relatively slow IPO market globally and the availability of late-stage funding, it is no surprise that companies are staying private as long as possible. Uptick in secondary market activity providing much-needed liquidity While companies are staying private longer, many of their investors still want exits. This has led to a more robust secondary market in order to allow companies to provide liquidity to their employees and early-stage investors. If the secondary market were to dry out, companies could be pressured to go public more quickly. However, this is not expected to be a concern for companies over the next few quarters. IPO activity remains weak in 2017 IPO activity globally remained relatively slow compared to previous years. While a number of companies held successful IPOs in 2017, step-up valuations have been relatively slight. This suggests that the last private valuation pre-IPO for some companies may have been inflated. At the same time, the slight step-up valuations may simply suggest that more time is required before a company's post-IPO performance can be truly evaluated. For example, Square's valuation 12 months post- IPO was not significantly above its IPO price, but 2 years out, the valuation is now five times greater. Watching the performance of companies which held IPOs during 2017, such as Okta and Snap, over the next year, may provide a better indication of value. https://pitchbook.com/news/articles/beware-the-rise-of-the-zombiecorn https://pitchbook.com/news/articles/beware-the-rise-of-the-zombiecorn 8 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global VC investment hits record annual high, cont'd. Alternative financing mechanisms beginning to gain traction 2017 saw a significant increase in interest in alternative financing mechanisms, particularly Initial Coin Offerings (ICOs). While cryptocurrencies, such as Bitcoin have been of some interest to investors over the last couple of years, this year, there was a substantial increase in the number of ICOs which, together, raised over $2 billion in capital. The challenge with ICOs is that many financial regulators are still working to wrap their heads around the value, benefits, risks and opportunities presented by ICOs. Over the next year, regulators will likely begin to evaluate ICOs more actively. Based on the results of these analyses, there could be significant positive or negative ramifications to current or future ICOs in various countries and regions. Pharma & Biotech a big winner in 2017, poised for additional growth Pharma & biotech investment experienced significant growth globally in 2017, reaching over $16 billion in investment compared to $12.2 billion in 2016. Q4'17 saw the most successful quarter of biotech funding yet, capped by US-based cancer-screening company Grail's $1.2 billion Series B funding round. While the US accounted for the vast majority of all biotech investment, Europe also saw several biotech focused mega-deals, including Switzerland-based ADC Therapeutics ($200 million) and Germany-based CureVac's ($100 million), both in Q4'17. The general healthtech sector also saw a record high level of investment in 2017, reaching over $4.5 billion in investment globally and 4. Artificial intelligence experiences bumper year of investment In 2017, VC investment in artificial intelligence almost doubled, attracting $12 billion of investment globally, compared to $6 billion in 2016. Q4'17 saw a significant number of AI-focused VC deals, including Nio ($1 billion), Face++ ($460 million), and Indigo ($206 million). As well, Didi-Chuxing, China's top ride hailing company, raised $4 billion this quarter, in part to enhance their AI capabilities. AI is expected to remain a hot area of investment given the widespread application AI offers across industries, from autotech to fintech, robotics and healthtech5. AR/VR also saw significant interest from investors globally throughout 2017. The definition of AR/VR continued to expand over the course of the year, with mobile AR and computer vision/machine learning (CV/ML) coming into their own as innovation opportunities. Trends to watch for in 2018 Heading into 2018, the outlook for the global VC market is very positive. There are a number of indications that some VC firms globally will raise larger global funds than they have in the past in order to compete with the $100 billion Softbank Vision Fund6. Areas such as healthtech, biotech, and autotech are expected to gain more attention from investors over the next few quarters, while newer areas such foodtech and agtech are well-positioned to become hot. In addition, 2018 is also poised to see a major increase in investor focus on cross-industry solutions, such as the applicability of AI across sectors, and the use of technology to increase the effectiveness and efficiency of less technology mature industries. Blockchain is also expected to remain an investment priority. https://pitchbook.com/news/articles/4-trends-in-vc-healthtech-investment 4 https://pitchbook.com/news/articles/vc-investment-in-biotech-blasts-through-10b-barrier-in-2017 and https://techcrunch.com/2017/11/30/theres-an-implosion-of-early-stage-vc-funding-and-no-ones-talking-about-it/ 5 https://pitchbook.com/news/articles/rise-of-ai-excites-vc-investors-challenges-society and https://pitchbook.com/news/articles/2017-year-in-review-the-top-vc-rounds-investors-in-ai 6 https://www.recode.net/2017/12/20/16804282/sequoia-raising-new-fund-6-billion-softbank 9 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global venture financing by stage 2010 Q4'17 The divergence between the number of completed venture financings and overall capital invested crested in the final quarter of 2017, further emphasizes the ongoing effects of significant amounts of capital within the overall VC ecosystem, with investor caution and required benchmarks on the rise as round sizes and valuations remain stubbornly inflated. Source: Venture Pulse, Q4'17. Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, January 16, 2018. Note: Refer to the Methodology section on page 103 to understand any possible data discrepancies between this edition and previous editions of Venture Pulse. VC invested & volume diverge even further "The five largest VC mega-deals accounted for over $16 billion in funding in 2017. These massive deals, combined with continued investor focus on investing more money in fewer companies easily accounts for why the VC market has seen an up swell in investment despite a sharp decline in the number of deals." 0 1,000 2,000 3,000 4,000 5,000 6,000 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q 2010 2011 2012 2013 2014 2015 2016 2017 Capital invested ($B) # of deals closed Angel/Seed Early VC Later VC Jonathan Lavender Global Chairman, KPMG Enterprise, KPMG International 10 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global median deal size ($M) by stage 2010 2017* Global up, flat or down rounds 2010 2017* 2017 marked either a continued or new high for median financing sizes across the board, reflecting how much money is sloshing around in the underlying venture ecosystem. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. *As of 12/31/2017. Data provided by PitchBook, January 16, 2018. Across all stages, underlying dry powder reserves exert upward pressure $0.5 $0.5 $0.5 $0.5 $0.5 $0.6 $0.8 $1.0 $2.5 $2.4 $2.1 $2.3 $2.8 $3.2 $3.7 $5.0 $5.5 $6.3 $6.0 $5.8 $7.5 $9.6 $9.5 $10.8 2010 2011 2012 2013 2014 2015 2016 2017* Angel/seed Early stage VC Later stage VC 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2010 2011 2012 2013 2014 2015 2016 2017* Up Flat Down 11 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global median deal size ($M) by series 2010 2017* Analyzing median tallies by series adds shades of nuance to investors' attitudes as well as strategies. The fact Series D and later rounds have never seen a higher median financing size speaks volumes about VCs' desires for exposure to costly, yet safer prospects, while the disparity between Series A and B financings (in terms of size) suggests that distinct hurdles are most likely at that stage of development for startups seeking financings. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. *As of 12/31/2017. Data provided by PitchBook, January 16, 2018. The latest stage resurges once more $0.5 $0.5 $0.4 $0.4 $0.5 $0.6 $0.7 $1.0 $2.5 $2.8 $2.7 $3.0 $3.5 $4.1 $5.0 $6.0 $7.0 $7.2 $7.0 $7.0 $10.0 $12.0 $12.0 $14.5 2010 2011 2012 2013 2014 2015 2016 2017* Seed Series A Series B $10.0 $12.0 $11.5 $12.0 $15.0 $20.0 $22.6 $25.0 $12.2 $14.9 $16.0 $16.0 $27.0 $35.0 $26.5 $40.0 2010 2011 2012 2013 2014 2015 2016 2017* Series C Series D+ 12 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global median pre-money valuation ($M) by series 2010 2017* The narrative of a new class of large, mature, venture-backed companies opting to continue growth in the private markets rather than embark on traditional avenues, such as IPOs, was even more pronounced in 2017. The numbers depict why: at close to $300 million, the median, pre-money valuation for Series D or later financings has never been higher, and far outstrips any prior years. Such a sum is clearly driven by outliers. However, the existence of such outliers speaks to how investors have been unprecedentedly willing to fuel growth in private markets. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. *As of 12/31/2017. Data provided by PitchBook, January 16, 2018. Outliers signify the trend of companies staying private longer $2.9 $3.3 $3.0 $3.1 $3.4 $4.0 $4.6 $5.5 $6.1 $7.0 $7.9 $8.6 $10.9 $12.8 $14.2 $15.9 $19.3 $20.5 $21.0 $25.0 $31.0 $38.8 $37.4 $42.6 2010 2011 2012 2013 2014 2015 2016 2017* Seed Series A Series B $37.4 $46.0 $47.2 $53.1 $58.3 $75.0 $80.0 $92.4 $66 $83 $91 $97 $144 $184 $150 $275 2010 2011 2012 2013 2014 2015 2016 2017* Series C Series D+ 13 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global deal share by series 2010 2017*, number of closed deals Global deal share by series 2010 2017*, VC invested ($B) Although reflected in figures for some time, as of late, there has been a resurgence in attention paid to the decline in the volume of completed financings at the earliest of stages: angel and seed. The severity of the decline is due partially to a time lag in tracking the sheer flow of angel deal flow. However, the larger takeaway is that as the VC investing game has grown more sophisticated, the early-stage became too pricey for many, while protracted liquidity only further disincentivized angel investors from maintaining the same torrid pace as earlier in the decade. Accordingly, as is typical of investing cycles, the pace has slowed markedly, in an expected manner. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. *As of 12/31/2017. Data provided by PitchBook, January 16, 2018. The early-stage slump: Crash or correction? 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 20102011201220132014201520162017*Series D+ Series C Series B Series A Angel/seed $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 20102011201220132014201520162017*Series D+ Series C Series B Series A Angel/seed "Investors globally remain focused on late-stage companies with proven technologies and markets, paying relatively high prices to reduce their risk of failure. It became more challenging for early-stage companies to get the VC community's attention and funding a fact that will likely impact the pipeline down the road." Arik Speier Co-Leader, KPMG Enterprise Innovative Startups Network, KPMG International and Partner, Head of Technology, KPMG in Israel 14 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global financing trends to VC-backed companies by sector 2013 2017*, number of closed deals Global financing trends to VC-backed companies by sector 2013 2017*, VC invested ($B) As has been expected for some time, since much of the lowest-hanging fruit in pure software plays has already been tackled, particularly on the consumer side, the proportions of relatively less popular (by deal volume) sectors have been somewhat resilient, such as pharma & biotech or healthcare services, systems, devices and supplies. Although the decline has impacted all, healthcare devices and supplies startups, for example, will close the year at a proportion of 4%+ of all global VC activity, close to a full percentage point increase year-over-year. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. *As of 12/31/2017. Data provided by PitchBook, January 16, 2018. Software dominates, as diversity grows slightly 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 20132014201520162017*Commercial Services Consumer Goods & Recreation Energy HC Devices & Supplies HC Services & Systems IT Hardware Media Other Pharma & Biotech Software 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 20132014201520162017*Commercial Services Consumer Goods & Recreation Energy HC Devices & Supplies HC Services & Systems IT Hardware Media Other Pharma & Biotech Software 15 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Financing of VC-backed companies by continent 2013 2017*, number of closed deals Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. *As of 12/31/2017. Data provided by PitchBook, January 16, 2018. In time of caution, volume favors mature markets 64% 27% 9% 61% 28% 11% 60% 26% 14% 58% 27% 15% 65% 24% 11% Americas Europe Asia Pacific 2017* 2016 2015 2014 2013 16 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 73% 17% 10% 66% 15% 19% 58% 13% 29% 56% 12% 32% 57% 12% 31% Americas Europe Asia Pacific Financing of VC-backed companies by continent 2013 2017*, VC invested ($B) Asian growth caps off a highly impressive year for sheer sums deployed Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, January 16, 2018. 2017* 2016 2015 2014 2013 17 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Corporate VC participation in global venture deals 2010 Q4'17 Note: The capital invested is the sum of all the round values in which corporate venture capital investors participated, not the amount that corporate venture capital arms invested themselves. Likewise, the percentage of deals is calculated by taking the number of rounds in which corporate venture firms participated over total deals. Ecosystems mutate slowly, yet it has been clear for some time now that the role CVCs play within the global venture ecosystem has only grown more important and sizable over time. The significant ramp-up not only in participation percentages but also associated deal value, is impacted highly by countries such as China fostering massive financings of nascent tech enterprises in order to contribute to overall economic growth and innovation, while multinational corporations are also staying engaged simply to shore up or augment business lines. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, January 16, 2018. Corporate VCs look set to remain highly active after year of remarkable participation 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% $0 $5 $10 $15 $20 $25 $30 $35 1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q 2010 2011 2012 2013 2014 2015 2016 2017 Capital invested ($B) % of total deal count 18 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global first-time venture financings of companies 2010 2017* This year has been fraught with significant tensions in nearly every realm, ranging from worry over the persistence of public market valuations to numerous policy changes. Accordingly, when it comes to the riskiest of all ventures pledging capital in the first institutional round of funding for a nascent company it is of little surprise that the pace of headier, prior years remains unmatched. That said, the staggering sums still invested in such deals speaks to how deep the pockets of the venture industry currently are, as well as the emergence of newer company models in buzzed-about verticals, such as autonomous vehicles, that can command plenty of capital, even at the outset. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. *As of 12/31/2017. Data provided by PitchBook, January 16, 2018. Volume & VC invested remain off the pace of prior years $9 $12 $13 $12 $14 $20 $17 $13 3,786 5,054 5,941 6,693 7,316 6,668 5,223 3,813 2010 2011 2012 2013 2014 2015 2016 2017* Capital invested ($B) Deal count 19 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Q4'17 caps off a massive year with fourth- highest sum of unicorn VC invested ever Global unicorn rounds 2010 Q4'17 Note: PitchBook defines a unicorn venture financing as a VC round that generates a post-money valuation of $1 billion or more. Unicorn financing trends are always going to be quite volatile. Having said that, it's highly telling that not only did 2017 see a steadier clip in more quarters than all of 2016, but also experienced the strongest consecutive 3 quarters of unicorn financing value ever. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, January 16, 2018. 0 5 10 15 20 25 30 35 40 45 $0 $5 $10 $15 $20 $25 $30 1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q 2010 2011 2012 2013 2014 2015 2016 2017 Capital invested ($B) # of deals closed 20 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global venture-backed exit activity 2010 Q4'17 From 2014 through the end of 2016, venture-backed exit volume remained fairly elevated, even though much of 2015 and 2016 saw a slow decline in momentum on a quarterly basis. Moreover, exit value stayed historically healthy. However, since 2017 began, there has been a sharper tilt downward in exiting by VCs. That is not yet cause for alarm, given that private markets and funds timelines are fairly prolonged. However, what matters more in the year to come is whether the exit cycle winds down even further (by both count and value) especially for the largest, late-stage private companies that will need to consider liquidity concerns sooner rather than later. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, January 16, 2018. Will the exit cycle subside further or plateau? 0 100 200 300 400 500 600 $0 $10 $20 $30 $40 $50 $60 1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q 2010 2011 2012 2013 2014 2015 2016 2017 Exit value ($B) Exit count 21 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global venture-backed exit activity (#) by type 2010 2017* Global venture-backed exit activity ($B) by type 2010 2017* The prospects of a small but highly publicized group of companies, such as Pinterest, Airbnb, Cloudera, etc., to go public have rarely been hyped as much as they are going into 2018. It's worth noting, many presumed 2017 would see more tech IPOs than the year ended up recording, as well. However, with economic and consumer sentiment more bullish in the wake of a year in which so many macropolitical and macroeconomic factors refused to slump and financial markets' bull run remained unabated, perhaps the timing is more auspicious now. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. *As of 12/31/2017. Data provided by PitchBook, January 16, 2018. Will the IPO window open further in 2018? 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2010 2011 2012 2013 2014 2015 2016 2017* Strategic Acquisition Buyout $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 2010 2011 2012 2013 2014 2015 2016 2017* Strategic Acquisition Buyout IPO "2018 will likely build off the optimism that returned to the global and US VC market in 2017. We will likely see more IPOs, more VC deals and cash coming back from overseas, which will likely help drive M&A activity, share buyback and dividends, in addition to creating more liquidity in the market. Barring an unexpected event, 2018 has the potential to be a strong year for VC." Brian Hughes Co-Leader, KPMG Enterprise Innovative Startups Network, KPMG International and National Co-Lead Partner, KPMG Venture Capital Practice, KPMG in the US 22 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global venture fundraising 2010 Q4'17 In the back half of 2017, venture fundraising finally experienced a significant decline in both aggregate capital committed, as well as volume of closed vehicles, after a very healthy period of nearly 3 years. Given the recency of the decline and the fact that even the weaker tallies are not atypical on a historical basis, it is clear the venture fundraising cycle is gently subsiding after a very bullish period, in a typical manner. Investors in VC funds are likely drawing back as funds continue drawing down capital to maintain investing in a pricey climate, and biding their time to see how returns play out. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, January 16, 2018. Fundraising finally subsiding 0 20 40 60 80 100 120 140 160 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q 2010 2011 2012 2013 2014 2015 2016 2017 Capital raised ($B) # of funds raised 23 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Global venture fundraising (#) by size 2010 2017* As the current boom market in the venture industry kicked off several years ago, it is clear that the earliest successes for many VC firms paid off in even more successful fundraising efforts with larger vehicles down the road, given the increasing concentration of activity in the middle of the market over the past 4 years. The decline in the early-stage makes sense given the complexities of seed investing and investment models in general growing more sophisticated at that stage. Global first-time vs. follow-on venture funds (#) 2010 2017* Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. *As of 12/31/2017. Data provided by PitchBook, January 16, 2018. Prior successes have led to more fundraising centered in the middle of the market 0 50 100 150 200 250 300 350 400 450 20102011201220132014201520162017*Under $50M $50M-$100M $100M-$250M $250M-$500M $500M-$1B $1B+ 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 20102011201220132014201520162017*First-time Follow-on 24 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 10 7 3 8 5 6 4 9 2 1 Top 10 global financings in Q4'17 Didi Chuxing $4,000M, Beijing Transportation Late-stage VC Meituan-Dianping $4,000M, Beijing E-commerce Series C Lyft $1,500M, San Francisco Transportation Series H Grail (Biotechnology) $1,212M, Menlo Park, CA Biotechnology Series B Nio $1,000M, Shanghai Transportation Series D 7 8 6 9 10 5 4 3 2 1 Faraday Future $1,000M, Los Angeles Transportation Early-stage VC Guazi.com $580M, Beijing E-commerce Series B Hellobike $502M, Shanghai Transportation Series D Magic Leap $502M, Plantation, FL Application software Series D Compass $500M, New York Real estate services Late-stage VC Q4'17 top deals split between China & US Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, January 16, 2018. In Q4'17 VC-backed companies in the Americas raised $24.5B across 1,858 deals 26 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. VC investment in the Americas gains strength Overall investment trends in the Americas mirrored many of the trends seen in the US throughout 2017, although Canada, Mexico, and Brazil also saw unique VC trends given their different priorities. VC funding in the Americas driven by the US Total VC investment in the Americas reached a new high in 2017, buoyed by massive deals in the US, including Q4'17 deals such as Lyft ($1.5 billion), Grail Technologies ($1.2 billion), Faraday Future ($1 billion), Magic Leap ($502 million), and Compass ($500 million). As one of the more advanced markets for technology innovation, the US also saw the rapid maturation of specific new technology sectors considered to be in their infancy in other regions. For example, while ride-sharing continued to be a big play market during 2017, most US-based VC investments in ride- sharing during the year revolved around dominant market players Uber and Lyft. The same could be said for the food delivery market, in which a small number of companies have achieved economies of scale, while others have fallen by the wayside. Canada drives Americas' biggest VC deals outside of the US Outside of deals conducted in the US, Canada accounted for the biggest VC deals in the Americas this quarter, raising over $435 million, including a $166 million round by e-commerce company Lightspeed POS, a $50 million round by infrastructure platform provider Loraxian, and a $49 million round by storytelling app Wattpad. In Canada, foreign VC investment, primarily from the US, continued to outpace investment by domestic VC firms. While both the amount of VC investment and the number of VC deals declined quarter-over-quarter in Canada, the average deal size rose somewhat. Unlike in the US, where the proportion of early-stage deals declined compared to other deal stages, in Canada, early-stage deals accounted for the highest percentage of total deals since 2009. Information and communications (ICT) sector continues to spur Canada's innovation ecosystem The ICT sector continued to be a key driver behind Canada's technology ecosystem in 2017, attracting a significant amount of investor attention. At a technology level, Artificial Intelligence was a clear area of investor interest, in addition to software-as-a-service solutions and healthtech. Innovation hubs in Toronto and Vancouver saw the majority of VC investment during the year, although Quebec attracted its highest proportion of VC deals since 2011. This likely reflects the increasing importance being placed on Montreal as a major technology hub. Canadian government strongly supporting innovation The Canadian government remained committed to further developing Canada's VC market and innovation ecosystems throughout 20177. The government announced a Venture Capital Catalyst Initiative earlier in the year, which is expected to be implemented in the near future. This program commits $400 million over 3 years through the Business Development Bank of Canada to increase last-stage VC available to Canadian companies. The government also announced $125 million in funding for a Pan-Canadian Artificial Intelligence Strategy to help cement Canada's position as a global leader in the field. VC investors in Canada remain concerned about a number of uncertainties heading into 2018, including the impact of the US tax reform bill, expected Canadian tax changes, and the ongoing NAFTA renegotiation process. 7 https://www.itbusiness.ca/news/venture-capital-catalyst-initiative-expected-to-fuel-canadas-innovation-capital-market-by-1-5b/97641 27 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. VC investment in the Americas gains strength, cont'd. Brazil sees massive increase in VC funding during Q4'17 After a very weak Q3'17, Brazil saw a massive uptick in VC investment, with $233 million invested during the fourth quarter. Several large deals led this funding spike, including mobile market place Movile ($82 million), personal finance platform GuiaBolso ($39 million) and secure lending platform Creditas ($50 million). Fintech is a clear driver of VC investment in Brazil8. On a year-over-year basis, VC investment in Brazil rose significantly, from $392 million in 2016 to over $575 million this year. While US investors have pulled back from Latin America9, Chinese investors, particularly China's big tech giants, have been increasingly interested in both Brazil and the broader Latin America region. For example, Alibaba recently announced a program to share logistics and payment best practices with companies in Mexico. VC investment in Mexico falls off a cliff in Q4 VC investment in Mexico dropped for the second straight quarter in Q4'17. Despite the decreasing levels of VC investment, optimism remains high for future VC investment in the country, particularly in fintech, given Mexico's large unbanked and underbanked populations. Currently, over 300 fintech companies are operating in Mexico. Of these, more than 120 have incorporated over the last year. While much of the VC interest in Mexico has come from the US to-date, there has also been increasing interest from Asia and Europe based VC investors. If this interest begins to bear fruit in terms of investment dollars, the VC market in Mexico could see an upswing over the next year or 2. Trends to watch for in 2018 In 2018, VC investment in the Americas is expected to grow. In the US and Canada, healthtech, biotech and agtech are expected to be key areas of investment, in addition to blockchain and AI. In Brazil and Latin America, there is likely to be continued interest in fintech, from payments to microlending and small business financing. 8 https://techcrunch.com/2017/12/12/brazilian-startup-creditas-is-revolutionizing-credit-in-the-worlds-third-largest-lending-market/ and https://techcrunch.com/2017/09/15/corporate-venture-in-brazil-gains-steam-as-giants-amp-up-startup-investments/ 9 https://venturebeat.com/2017/12/17/chinese-investors-target-latin-american-startups-as-u-s-vcs-shy-away/ 28 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Venture financing in the Americas 2010 Q4'17 Even with all additional data intakes accounted, it is clear there was a mild decline between Q2 and Q3 in 2017 in terms of volume in the Americas and, as of now, an even steeper decrease between Q3 and the final quarter of the year. Paired with such lofty quarterly tallies of VC invested, it is clear the late-stage boom has yet to end, with massive streams of VC still flowing to fund the growth of mature tech companies. Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. Data provided by PitchBook, January 16, 2018. Volume takes a turn down in a rich climate 0 500 1,000 1,500 2,000 2,500 3,000 3,500 $0 $5 $10 $15 $20 $25 $30 1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q 2010 2011 2012 2013 2014 2015 2016 2017 Capital invested ($B) # of deals closed Angel/Seed Early VC Later VC 29 #Q4VC 2018 KPMG International Cooperative ("KPMG International"). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Median deal size ($M) by stage in the Americas 2010 2017* Source: Venture Pulse, Q4'17, Global Analysis of Venture Funding, KPMG Enterprise. *As of 12/31/2017. Data provided by PitchBook, January 16, 2018. Up, flat or down rounds in Americas 2010 2017* Up rounds & capital invested on the upswing $0.5 $0.5 $0.5 $0.5 $0.6 $0.7 $0.9 $1.0 $2.7 $2.7 $2.7 $3.0 $3.3 $4.0 $5.0 $6.0 $6.0 $7.5 $7.3 $6.5 $8.7 $10.0 $10.0 $11

While the software sector continued to attract the bulk of VC funding, the biotech and healthech sectors experienced strong growth this year, with pharma & biotech companies alone raising a record high of over $16 billion in VC funding globally.

About Techcelerate Ventures

Tech Investment and Growth Advisory for Series A in the UK, operating in £150k to £5m investment market, working with #SaaS #FinTech #HealthTech #MarketPlaces and #PropTech companies.

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