Continued investor concerns over startup valuations, macroeconomic upheavals, the ramifications of Brexit, and an uncertain exit environment for portfolio companies translated into another down quarter for investment deals in venture capital (VC)-backed companies.
According to Venture Pulse, the quarterly global report on VC trends, published jointly by KPMG International and CB Insights, Q2 2016 saw $27.4 billion invested across 1,886 deals globally, representing a slight increase in total funding over Q1 2016 but a fourth-straight quarter of investor pull-back in activity. The total number of deals declined an additional 6 per cent from Q1 2016, after reaching a high in Q2 2015.
The trends, visible across major venture hubs, were decidedly mixed. North America and Asia saw funding climb slightly across fewer deals, while Europe saw total investment drop 20 per cent as deal count rose. The latter continued to show robust early and seed stage activity.
North America and Asia saw funding climb slightly across fewer deals, while Europe saw total investment drop 20 per cent as deal count rose
Anand Sanwal, CEO of CB Insights, commented: “The story of this quarter is the continued decline in deal activity. Unless you’re one of five companies for which there is insatiable investor appetite, it is becoming tougher to raise money from VCs and the assorted cast of characters who’ve entered the investment fray, i.e., hedge funds, mutual funds, sovereigns, corporations, etc. Expect to see lots of companies talking about profitability and taking on cost-cutting measures in the coming quarters.”
Large mega-round activity continued to slip, with 35 in Q2 2016 compared to 40 in Q1 2016 and 73 in Q3 2015.
Traditional VCs as well as crossover investors such as mutual funds and hedge funds, have continued to be more conservative in their commitments to such large deals. Developments in the global world of early stage business activity is increasingly relevant for Malta, with David Pace, deal advisory partner within KPMG in Malta, noting that there were exciting developments locally.
“The local early stage business ecosystem is steadily taking shape and this was visible to those who attended the digital business conference, ‘Zest’, last month,” he said.
Focusing on the local investor perspective, he commented: “We have followed a sustained interest by local resource-rich family businesses and successful entrepreneurs to consider investments into early stage businesses.”
He attributed this trend to such investors, viewing this route as a means to achieve a number of objectives.
These included: growth ambitions (often otherwise stifled by saturation in their core markets), a desire to diversify beyond their current offering (enabling say different family members to have their area of focus), to leverage synergies (ranging from access to clients, markets and geographies to value chain benefits) and finally to improve returns on idle cash reserves.