NEW YORK, April 21, 2020 /PRNewswire/ -- The Q1'20 edition of the KPMG Private Enterprise Venture Pulse saw global VC investment in Q1'20 dip quarter-over-quarter with US$61 billion raised. The relatively robust figure compared well to historical norms, as deals were already far along, limiting the impact of COVID-19. However, uncertainty caused by the pandemic and its effect on the next few quarters raises concerns across the sector.
"A very strong deal pipeline in most regions of the world limited the impact of COVID-19 on the VC market globally in Q1'20," said Conor Moore, Co-Leader, KPMG Private Enterprise Emerging Giants Network. "But given the sharp decline of VC deal volume in Asia, as compared to the many economies that only started to shut down near the end of the quarter, Q2'20 is expected to be a rough quarter for VC investment in every jurisdiction."
Key Highlights – Q1'20
Five massive mega-deals propped up total global investment numbers, as global VC deal volume declined 27%. Indonesia-based ride-hailing company Gojek and China-based video streaming company Kuaishou both raised $3 billion, leading all others. Waymo, a US-based autonomous vehicle company, raised $2.25 billion, while US-based cleantech investor Generate Capital and China-based edtech Yuanfudao raised $1 billion apiece.
- Global VC investment dropped from $65.6 billion in Q4'19 to $61 billion in Q1'20, despite 5 $1 billion+ mega-deals.
- The volume of global VC deals declined 27%, falling from 5,820 deals in Q4'19 to 4,260 in Q1'20. The number of VC deals has not been this low since Q3'13.
- VC investment in the Americas rose slightly – from $33.5 billion in Q4'19 to $35.3 billion in Q1'20. The US drove the vast majority of this investment, accounting for $34.2 billion of the Americas total. Europe also saw a solid increase in investment – from $7.9 billion in Q4'19 to $8.8 billion in Q`20.
- Asia saw a 31% decline in funding this quarter – dropping from $23.8 billion to $16.5 billion, particularly informative given it was the region first hit by COVID-19.
- Global corporate participation in VC deals reached a record 28.8% in Q1'20, contributing $31.6 billion in investment.
- Fintech saw major global investment in Q1'20 as numerous digital banks received raises, including US-based Chime ($700m), UK-based Revolut ($500m), Sweden-based Klarna ($200m), and Australia-based Xinja ($160m).
- Benevolent and philanthropic investing increased as investors look to support companies looking for a vaccine or that have innovative ways of dealing with coronavirus.
VC investment in the US remains strong in Q1'20
While investment in the U.S. remained strong during the quarter with $34 billion invested across 2,298 deals, the sudden emergence of COVID-19 created significant economic turbulence and uncertainty, and major waves in the public markets. A significant number of in-progress IPO's ground to a halt, with a number of companies planning to postpone their offerings indefinitely.
Deal sizes were quite robust in the early part of Q1'20, led by Waymo's$2.25 billion round and a $1 billion raise by cleantech infrastructure investor Generate Capital. The largest deals of the quarter went to companies in finance, B2B productivity, aerospace, entertainment, network management, and autonomous driving.
Given that the US and global markets are operating in unprecedented times, U.S.-based VC investors are poised to become even more cautious with their investments moving forward. They will likely also need to re-evaluate the needs of their existing portfolio companies given the changing business environment.
VC investment in the Americas rises in Q1'20, driven by US-based VC investment
VC investment in the Americas rose quarter-over-quarter to $35.3 billion in Q1'20, with the US accounting for nearly 96% of deal value in the region. But deals in the Americas dropped more than 20% this quarter – from 3,073 deals in Q4'19 to 2,443 deals in Q1'20.
Led by a $2.25 billion raise by autonomous mobility company Waymo, the US accounted for $34.2 billion of all VC investment in the Americas and tallied 2,298 of the deals in Q1'20. Other notably deals in the US included a $1 billion raise by cleantech infrastructure investor Generate Capital, a $750 million raise by mobile media company Quibi, and a $700 million raise by e-cigarette company Juul.
After a very strong second half of 2019, Canada saw a 50% decrease in VC investment – attracting $702 million in Q1'20. This was Canada's lowest level of quarterly investment since Q1'18. VC investment in Brazil also dropped more than 50% to $219 million, while deal volume in the country plummeted from 64 deals in Q4'19 to just 19 in Q1'20.
VC investment in Europe rises, driven by strong geographic diversity
While the number of VC deals in Europe dropped from 1,262 in Q4'19 to 923 in Q1'20, VC investment in the region rose from $7.9 billion to $8.8 billion. Europe's strength continued to be driven by the growing geographic diversity of investment. The top five deals in Q1'20 included companies from five countries, including UK-based Revolut ($500m), Germany-based Lilium ($240m), Israel-based AppsFlyer ($210m), Sweden-based Klarna ($200m), and France-based Colonies ($197m).
Despite its official departure from the EU at the end of January, the UK saw a surge in VC investment in Q1'20 - with $3.2 billion compared to $2.1 billion in Q4'19. At the same time, Germany-based VC investment increased nominally to $1.37 billion, while France had its second strongest quarter of VC investment ever – with $1.36 billion in investment.
Asia-based VC falls to twelve-quarter low amid COVID-19 despite mega-deals
VC investment in Asia dropped significantly – to a twelve-quarter low of $16.5 billion – despite 3 deals at, or over $1 billion: a $3 billion raise by Indonesia-based Gojek, a $3 billion raise by China-based Kauishou, and a $1 billion raise by China-based Yuanfudao.
As the first country to deal with COVID-19, it was not surprising that both VC investment and deals volume in China plummeted in Q1'20 - to $8.9 billion across 481 deals. At the same time, the $1 billion raise by edtech company, Yuanfudao, at the end of the quarter highlighted the potential of companies in certain industries to buck the downward trend due to their sudden applicability.
After a record-breaking $6 billion in Q4'19, VC investment in India tumbled to just $2.2 billion in Q1'20. Meanwhile, the ride-hailing industry in Southeast Asia bucked the downward trend, likely due to the fierce competition for market share. During Q1'20, both Indonesia-based Gojek and its primary regional competitor Singapore-based Grab raised large funding rounds - $3 billion and $886 million respectively.
COVID-19 expected to have significant impact on VC investment heading into Q2'20
The global pandemic caused numerous jurisdictions to shutdown large portions of their economies and severely curtail the movement of people both locally and globally. With restrictions expected to last well into Q2'20 at a minimum, the VC market outlook for the next quarter is expected to be very grim in most regions of the world. Many investors are expected to sit on the fence until the impacts of the pandemic are better understood.
"Given mobility constraints, deal-making processes globally are expected to slow considerably in Q2'20. VC deals that do occur will likely focus on follow-on funding to companies within a VC investor's current portfolio – and on companies that speak to a specific need in the current situation – such as productivity solutions, edtech, and logistics and delivery," suggested Kevin Smith Co-Leader, KPMG Private Enterprise Emerging Giants Network, KPMG International "We also expect an increase in philanthropic investing focused on companies working on a vaccine, on treatment options, or on understanding and mitigating the spread of COVID-19."
For more information, contact:
About KPMG Enterprise
You know KPMG, you might not know KPMG Private Enterprise. We're dedicated to working with businesses like yours. It's all we do. Whether you're an entrepreneur, a family business, or a fast growing company, we understand what's important to you.
The KPMG Private Enterprise global network for Emerging Giants has extensive knowledge and experience working with the startup ecosystem. From seed to speed, we're here throughout your journey. 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.
About KPMG International
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 147 countries and territories and have more than 219,000 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.
SOURCE KPMG LLP