A global decline in Q1 raises questions on whether the VC world has reached a turning point
A recent report from Pitchbook revealed a trend of decreased deal volume in the Canadian VC space since 2015. That decline appears to be part of a broader slowdown story — one that has continued into the first quarter of 2019.
According to a new Venture Pulse report from KPMG, VC deal volume has declined globally for the fourth consecutive quarter with only 2,657 deals: that represents the lowest number in 31 quarters since Q2 2011. Every region felt the continued decline in deal volume, though Europe experienced a particularly steep drop from 882 deals in Q4 2018 to 487 this past quarter.
“We saw a number of distinct trends in the VC market during the first quarter of 2019," said Arik Speier, head of Technology, KPMG Somekh Chaikin in Israel. He noted that deal value remained robust in the US and Europe, powered largely by big investments in later-stage deals.
“However, the big question is if we are facing a turning point in the volume of investment, yet to be seen," he added.
Global VC investment dropped from US$71 billion in Q4 2018 to $53 billion in Q1 2019. During that period, continued deal-value strength in the US brought it to US$32.6 billion, the second-highest quarterly total in the past seven years. That accounted for the lion’s share of the US$33.3-billion total VC investment within the Americas.
“Canada attracted numerous moderate sized deals in Q1’19, highlighting the country’s dynamic and varied VC market,” the report said. “With established innovation hubs in Vancouver, Toronto, Waterloo, Ottawa and Montreal, Canadian companies and regions continued to attract attention.”
Aside from the continued popularity of artificial intelligence as an area of VC investment across numerous verticals, the report made note of a continued gain in traction in healthtech, biotech, and automotive companies. And while Canadian VC investment dipped from around US$900 million in Q4 2018 to just over US$550 million in Q1 2019, KPMG said it should not be read into too much.
“[T]he tally of VC invested was quite healthy and there is likely a minor data lag in effect as is typical in private markets’ coverage,” the report said, adding that the Canadian start-up ecosystem’s growing diversity is more important to note.
On the European front, VC investment saw mixed results, possibly due to ongoing geopolitical uncertainty and associated challenges with Brexit. In spite of that, overall VC capital investment in Q1 2019 reached US$6.5 billion, just shy of the record set in Q4 2018. “However, deal volume plummeted, falling from 882 in Q4'18 to only 487 this quarter – representing the lowest quarterly total since late 2010,” the report said.
KPMG also noted the birth of another large crop of unicorns, with 24 new unicorn companies born globally across a wide range of verticals including 15 in the US and four in China.
“Since 2014 the number of active US unicorns has more than doubled to over 160 as private capital is readily available allowing companies to stay private longer," said Brian Hughes, National Private Markets Group Leader, KPMG in the US.
“After waiting for years, we finally saw some unicorns choosing to go public in late 2018. We anticipate this trend will continue well into 2019 – spurred by recent high profile offerings such as Lyft, and the ongoing strength of the public markets.”
