Despite Drastic Slowdown In Q4, U.S. Venture Capital Funding Exceeds $72B, Record Year In 2015: KPMG Report

Unicorns drop as Q4 marks four-year low for U.S. VC funding, and investors pull back on mega-round and seed-stage investments

Jan 20, 2016, 11:45 ET from KPMG International

NEW YORK, Jan. 20, 2016 /PRNewswire/ -- After a remarkable first half of Unicorns, mega-rounds, and tech bubble chatter in 2015, overall market concerns around valuations, burn rates, and over-funding put the brakes on investment in venture capital (VC)-backed companies in Q4'15, according to Venture Pulse, the quarterly global report on VC trends published jointly by KPMG International and CB Insights. The U.S. saw only $13.8 billion invested in Q4'15, a decrease in funding of more than $6 billion from Q3'15. Deal activity also declined, falling for the second straight quarter to 981 deals, the lowest since Q4'11, and down 22 percent compared to Q4'14.

Despite a slow Q4, however, the U.S. saw a total of $72.4 billion invested in VC-backed companies in 2015, a 26 percent jump compared to 2014, and a record year for VC-backed investment.

"2015 was a record-setting year for VC investment, driven by an incredibly positive first three quarters," said Brian Hughes, National Co-Lead Partner, KPMG LLP's Venture Capital Practice. "Following pull-back in the last quarter, we expect investors will be looking for companies that have positive growth margins, reasonable burn rates, and strong plans for early stage profitability."

To read the full Venture Pulse Q4'15 report, click here.

Unicorns drop in Q4
2015 may be remembered as the year of the Unicorn, with 60 new $1 billion valuation VC-backed companies born across the globe in the first three quarters of the year. However, only 12 new Unicorns were delivered globally in Q4'15, 7 of which were in North America and 5 in Asia. Among Q4's new Unicorns were, Udacity, and Gusto.

Pullback of Mega-Round and Seed-Stage Investments
Mega-rounds ($100+ million) in U.S. VC-backed companies dropped to just 18 in Q4 after seeing 39 in Q3. Overall, 2015 saw more than 100 mega-rounds, which raised a cumulative $27.3 billion. Seed-stage investments represented less than a quarter of all VC-backed investments in the U.S. in Q4'15, dropping to a 5-quarter low of 24 percent. Conversely, Series A deal share reached a 5 quarter high, accounting for 27 percent of all investments in U.S.-based VC-backed companies.

"Up until the third quarter of 2015, we saw as much capital going into companies generating negative cash flows as those generating positive ones," said Conor Moore, National Co-Lead Partner, KPMG LLP's Venture Capital Practice. "Now, we see a divergence. In 2016, the fundamentals are really going to start to matter again. Startups that may be operating with negative gross margins, excessive burn rates and inflated valuations will likely be the most impacted."

Additional findings:

  • 55 percent of all VC investments in Q4'15 were based in either California, New York, or Massachusetts.
  • California saw only $6.8 billion invested in Q4'15. New York funding fell to $1.5 billion while Massachusetts funding fell to $1.4 billion.
  • While activity in California has slowed down for 2 quarters straight, deals continue to top 400 per quarter and account for more than Massachusetts and New York combined.

About KPMG International
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have more than 162,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

About CB Insights
CB Insights is a National Science Foundation backed software-as-a-service company that uses data science, machine learning and predictive analytics to help our customers predict what's next—their next investment, the next market they should attack, the next move of their competitor, their next customer, or the next company they should acquire.

The world's leading global corporations including the likes of Cisco, Salesforce, Castrol and Gartner as well as top tier VCs including NEA, Upfront Ventures, RRE, and FirstMark Capital rely on CB Insights to make decisions based on data, not decibels.

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SOURCE KPMG International