Global venture capital investment hits decade high: report

The final quarter of 2017 saw US$46 billion in venture capital (VC) investment globally, propelling the VC market to a new annual high of US$155 billion of investment, finds a KPMG Enterprise report.

While investment was up, the VC market saw a continued decline in the volume of deals—with just 2,662 global deals in Q4 2017, the lowest quarter of deal volume since Q4 2011, notes the firm.

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The decline in deal volume only emphasized the increasing importance of mega-deals in the health of the global VC market. Q4 2017 saw a record six deals worth more than US$1 billion, including US$4 billion funding rounds to China-based companies Didi-Chuxing and online retail services provider Meituan-Dianping. Automotive-focused companies were big winners this quarter, with ride hailing company Lyft and electric car manufacturers Nio and Faraday Future joining Didi-Chuxing in raising more than US$1 billion.

While Chinese companies raised the largest deals this quarter, the Americas continued to see the largest amount of quarterly investment, with US$24.5 billion raised across 1,858 deals. The U.S. accounted for US$23.75 billion of the Americas’ total. Meanwhile, Asia saw US$15.6 billion in VC investment, while Europe saw a new quarterly high of US$5.7 billion.

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“Global venture capital investment surged, powered by mega funding rounds in Asia and new quarterly investment highs in the U.S. and Europe,” said Brian Hughes, national co-lead partner at KPMG Venture Capital Practice, in a release. “Investors continued to plow money into late-stage rounds as part of a broader trend for the year that saw 70% of VC investment concentrated in rounds of US$25 million or more. Looking ahead to 2018, we expect investors to continue to focus on late-stage deals with proven business models and a path to profitability.”

Quarter highlights

• Artificial intelligence and machine learning saw US$4.1 billion in investment in Q4 2017, compared to US$3.1 billion in Q3 2017.
• Corporate participation in global VC deals reached a record high of 18.7%, with US$26.5 billion invested in associated deals.
• Companies in China and the U.S. dominated the quarter’s list of top 10 deals, with each country accounting for five of the largest deals.

Annual highlights

• Global median deal size rose for every deal stage in 2017, with the median deal size of angel and seed deals rising to US$1 million from US$800,000, early stage deals rising to US$5 million from US$3.7 million, and later stage deals rising to US$10.8 million from US$9.5 million.
• Pharmaceuticals and biotechnology saw a massive year-over-year increase, from US$12.2 billion in 2016 to US$16.6 billion in 2017.
• Investment in artificial intelligence and machine learning doubled from US$6 billion in 2016 to US$12 billion in 2017.
• Global first-time VC financing fell for the third straight year—to US$13 billion across 3,813 deals.

Future looks bright

Looking ahead to 2018 and beyond, there are many positive signs that the global VC market will remain strong in terms of investment, notes the report, although the declining number of deals could create some challenges down the road.

VC fundraising could see an uptick in 2018, as VC firms globally look to create larger global funds than they have in the past in order to compete with the US$100 billion Softbank Vision Fund.

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Areas like healthtech, biotech and autotech are expected to continue to grow at a rapid pace, while artificial intelligence across industries will likely help drive significant investment rounds. Newer areas like foodtech and agtech are also expected to gain traction heading into 2018, notes the firm.

“Cross-industry solutions will likely be a key focus of VC investors heading into the next few quarters,” says Arik Speier, head of technology, KPMG Somekh Chaikin in Israel. “The applicability of innovative technologies, whether AI and machine learning or blockchain, to different sectors will likely keep investors focused and investment high regardless of any pauses among specific industries.”