Global VC Investment Remains Muted, Falling to $77.4 Billion Across 7,783 Deals in Q2'23 ? According to KPMG Private Enterprise's Venture Pulse Report
Global venture capital investment dropped for the sixth consecutive quarter in Q2'2023 ? falling from $86.2 billion across 10,121 deals in Q1'23 to $77.4 billion across 7,783 deals in Q2'23. Increasing interest rates, stubbornly high inflation, domestic and geopolitical challenges -including the protracted war in Ukraine, and ongoing concerns about the stability of the global banking system all combined to make it a challenging quarter for VC investment across regions, despite global interest in Generative AI.
The Americas accounted for the largest share of VC investment with $42.9 billion invested including six $400 million + mega-deals during the quarter. VC investment in Asia fell for the 6th consecutive quarter, reaching only $20.1 billion, as Chinese investors continued to hold off on large deals. European investors also remained on the sidelines, falling for the 4th consecutive quarter ? to $13.5 billion invested.
"Uncertainty continued to permeate the global VC market amidst geopolitical tension, high inflation, and the possibility of interest rates continuing to rise in a number of major jurisdictions," said Conor Moore, Head of KPMG Private Enterprise in the Americas Region & Leader, KPMG Private Enterprise Emerging Giants Network, KPMG International. "VC investors around the world remained cautious throughout the second quarter, scrutinizing potential deals and prioritizing profitability and the long-term viability of startup business models before making any investments. It's an interesting time as we arguably have never seen this level of economic and geopolitical uncertainty converging with an exciting, potentially world changing phenomenon - AI. The battle between these two competing forces will be fascinating to watch."
Key Highlights ? Q2'23
- Global VC investment fell for the 6th consecutive quarter ? hitting only $77.4 billion in Q2'23?the lowest level of quarterly investment since Q2'20.
- VC investment in the Americas was $42.9 billion across 3,360 deals in Q2'23, a decline from $47.7 billion across 4,009 deals in Q1'23.
- VC investment in Asia dropped from $22.9 billion across 3,148 deals to $20.1 billion across 2,395 deals between Q1'23 and Q2'23.
- In Europe, VC investment fell from $14.4 billion across 2,676 deals in Q1'23 to $13.5 billion across 1,861 deals in Q2'23.
- Global Corporate Venture Capital-participating investment was also slow in Q2'23, accounting for $39.7 billion in investment, compared to $45.9 billion in Q1'23.
- Global first-time VC financing remained weak in H1'23, accounting for just $17.1 billion globally.
- Global exit value continues to be muted and only increased slightly from a record low of $45.5 billion in exit value in Q1'23 to $51.5 billion in exit value in Q2'23.
Mega-deals remain slow
Overall, there was a decline in the number of mega-deals this quarter, with some notable exceptions. US-based payments company Stripe's $6.9 billion raise was by far the largest VC round of the quarter globally. After Stripe, Singapore-based online marketplace startup Shein raised the next largest deal ($2 billion), followed by US artificial intelligence startup Inflection ($1.3 billion) and India-based educational technology company Byju's ($700 million). Eyewear retailer Lenskart, also based in India, rounded out the largest 5 deals with a $600 million round. Overall, the top 10 deals globally were spread among 8 different countries.
Surging investment in AI
Investment in artificial intelligence remained robust in Q2'23. Investor interest in AI has continued to surge in the wake of OpenAI's introduction of ChatGPT in late 2022, and the announcement of Microsoft's $10 billion investment. In Q2'23, Google made a $450 million investment in Anthropic, while Amazon announced that it would make two language models available through its Amazon Web Services to support the building of bots by its customers.1 Microsoft-backed AI firm Inflection also had a massive $1.3 billion deal late in the quarter. AI has quickly become a target sector for VC investors who are looking for their next home run or experiencing the fear-of-missing-out (FOMO), in part because of the multiplier effect that AI offerings could have in driving widespread disruption across industries.
Alternative energy, energy storage, and cleantech remain attractive to VC investors
The extended conflict between Russia and the Ukraine, ongoing concerns about energy availability and energy costs, and growing commitment to, and funding for, cleantech innovation in many countries has driven significant interest in the energy space. This trend continued in Q2'23, with VC investors showing broadening interest across a growing diversity of energy solutions?from solar power technologies, offshore wind farms, and hydrogen and atomic energy applications to EV infrastructure, decarbonization solutions, and green finance focused offerings. Germany led the way with the largest deals of the quarter including a $232 million raise by climate-tech startup 1Komma5 and a $165 million raise by Electric Vehicle charge station company Jolt Energy.
Trends to watch for in Q3'23
Overall VC investment is projected to remain relatively steady going into Q3'23. Ongoing geopolitical challenges, lack of confidence in exit opportunities, economic concerns and the continued potential for interest rate hikes will continue to impact deal volume despite ongoing record liquidity.
"We continue to see record amounts of ?dry powder', however, despite the surplus of capital, we anticipate investors will remain cautious in the months to come, prioritizing investment opportunities in thriving industries like Energy and AI, and concentrating their funds on the most promising ventures that demonstrate a clear path to profitability," said Jonathan Lavender, Global Head, KPMG Private Enterprise, KPMG International.
Notes to Editors
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1 https://www.wired.com/story/amazon-is-joining-the-generative-ai-race/
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