Global VC investment comes roaring back due to a resurgence in mega deals: KPMG Venture Pulse Q2 2017

• Global VC deals down, investment up significantly in Q2
• China rebounds from Q1'17 with resurgence of mega-deals

TORONTO, July 13, 2017 /PRNewswire/ - Global venture capital (VC) deal value increased by 55.3 percent to $40.07 billion in Q2'17, propelled by an uptick in mega-deals around the world, according to Venture Pulse Q2 2017 — the quarterly global VC trends report published by KPMG Enterprise.*

Globally, the United States led VC investment, accounting for $21.8 billion, followed by Asia ($12.7 billion) and Europe ($4.1 billion). The increase in funding was strongly affected by a continued resurgence in mega-deals, including Didi Chuxing's record-breaking $5.5 billion round and Toutiao's $1 billion Series D round. Globally, there were nine deals at or over $500 million in value during the quarter including Mobike ($600 million) from Asia and Outcome Health ($600 million) from the United States. Europe also saw one of its largest funding rounds ever with Improbable's $502 million Series B raise.

While deal value increased, the total number of deals fell for the fifth straight quarter in Q2'17. The ongoing decline has affected the earliest deal stages the most, with angel and seed-stage deal count down for the ninth straight quarter – from a high of 2,674 in Q1 2015 to just 1,310 this quarter. In spite of the decline in transaction volume, the venture environment remains healthy and vibrant, with median valuations increasing at all stages of investment on a global level. Late stage valuations, in particular, demonstrated exceptional strength this quarter, leaping from $175 million in 2016 to $260 million in 2017, year to date, the largest median increase observed this decade.

"The IPO markets gained strong momentum ending the second quarter which should set up for a strong second half of 2017," said Brian Hughes, National Co-Lead Partner, KPMG Venture Capital Practice, and a partner for KPMG in the US. "Venture capital invested has improved significantly this quarter, with large deals in Asia, the Americas and Europe."

Key Q2'17 highlights

• Global VC investment rose from $25.8 billion in Q1'17 to $40.1 billion in Q2'17, a strong increase buoyed by a number of $500 million+ mega deals.
• Global median deal size at every stage remained high. Median Series D+ deal size jumped from $29.5 million in Q1'17 to $40 million in Q2'17.
• Corporate venture capital investment as a percentage of deal count spiked to 17.6 percent —representing the highest percentage this decade and almost $20 billion in associated deal value globally.
• Global venture fundraising jumped from $11.5 billion in Q1 to over $17 billion in Q2'17. Dry powder continued to drive high prices and competitive markets.
• Unicorn rounds spiked in Q2, with 33 rounds representing a total of $15 billion invested.
• Globally, there were nine VC deals at or over $500 million in value during Q2'17. Leading the way were Chinese companies Didi Chuxing ($5.5 billion), Toutiao ($1 billion) and Mobike ($600 million).

VC investment in the US reaches 2^nd highest quarterly total this decade

Contributing to the global resurgence, VC investment in the US rose substantially quarter over quarter to the second highest level of funding seen in a decade. Compared to the record high of almost $23 billion invested in Q2'16, this quarter saw $21.8 billion invested. Equally as strong is the rebound in the US IPO market. Through 2Q'17 US VC-backed IPOs have raised $422 million in public markets, higher than any full year total this decade. The resurgent IPO market and strong continued M&A activity, indicates that the US VC market is experiencing a solid rebound following the low experienced in Q4'16, which saw the lowest total invested since the end of 2013.

The volume of VC deals in the US rose very slightly, from 1,954 in Q1'17 to 1,963 this quarter. While a marginal increase, this is a possible sign that investment counts will rebound in the near future.

Investment in Europe increases – number of deals continues to fall

Deal count in Europe slumped from 760 to 589 quarter over quarter – dropping to a six-quarter low, and about 40 percent of the peak high seen in Q1'15. Despite this decline in volume, VC investment remained relatively robust in the region, with $4.1 billion invested – a marginal increase compared to Q1'17. Corporate participation remained strong, reaching a record high of 20.5 percent of all venture deals in Europe. Further, strategic M&A remained a strong driver for VC liquidity in Europe, producing over 70 percent of total exit transactions in the region.

Cities Paris and London hosted the majority of large deals in Europe, with both cities having three deals in the quarter's top 10. The largest deal for the quarter in the region went to London-based virtual reality firm Improbable, which raised $502 million in Series B funding, making it one of the largest VC deals ever in the United Kingdom.

VC investment in Asia skyrockets reaching $12.7B

Asia–based VC Investment jumped more than 100 percent in Q2'17 – from $5.4 billion in Q1 to $12.7 billion this quarter, an increase of over 130 percent. This increase was buoyed significantly by two $1 billion+ mega-rounds, including ridesharing platform Didi Chuxing's $5.5 billion funding round and Toutiau's $1 billion round, plus a significant number $100 million+ rounds. With over $10 billion in capital raised by VC-backed companies, China has amassed over 80 percent of total capital invested in Asia. Beijing accumulated 6 of the top 10 deals in the region, cementing the dominance of the country with respect to VC in Asia.

Late-stage financings in Asia, more so than in other world regions, are characterized by billion-dollar super financing events as companies amass the financial war chest needed to assert dominant market positions in their respective industries. As a share of total VC investment, Series D+ financings in Asia soared from 26 percent of total capital invested in 2016 to 45 percent in Q2 on $12.7 billion dollars of investment.

"Overall VC investment in every major region of the world was up this quarter – an incredibly positive sign following several lackluster quarters," said Arik Speier, Head of Technology, KPMG Somekh Chaikin in Israel. "While the low deal count, particularly at early deal-stages remains concerning, strong fundraising bodes well for continued strength in VC investment for the remainder of 2017."

About Venture Pulse

The Q2 2017 edition of the Venture Pulse report produced by KPMG Enterprise's Global Network for Innovative Startup, analyzes the latest global trends in venture capital investment data and provides insights from both a global and regional perspective. KPMG Enterprise has expanded the scope of Venture Pulse; this edition of the quarterly series provides in-depth analysis on the lifecycle of venture capital investments across the Americas, EMA and ASPAC, including a look at investment activity such as valuations, financing, deal sizes, mergers & acquisitions, exits, corporate investment and industry highlights.

*Note: all figures cited are in USD; data for the report provided by PitchBook.

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