Global venture capital (VC) market achieves new quarterly record with over US$69.8 billion invested

• Q2'18 sees highest quarter of VC investment of the decade as median deal sizes grow
• Asia dominates VC market globally with US$35.9 billion of investment
• Wave of late-stage capital accounts for over 20 percent of deal volume
• Ant Financial raises US$14 billion in funding in largest ever VC funding round

TORONTO, July 12, 2018 /PRNewswire/ - Venture capital (VC) investment hit a new record high in Q2'18, reaching US$69.8 billion* across 3,108 deals in Q2, according to Venture Pulse Q2, 2018, a quarterly report on global VC trends published by KPMG Enterprise.  

While VC deal volume continued to decline, the median deal size globally remained well above last year's totals across all deal stages, reaching $1.4 million (YTD) for angel and seed stage rounds, $7 million (YTD) for early stage rounds, and $13.5 million (YTD) for late-stage rounds.

"Late stage investment continues to grow in all regions of the world as unicorns pull in increasingly large amounts to fuel their growth.  This quarter, the top 10 Q2 deals contributed over $27 billion of VC investment –almost 40 percent of the global total," said Brian Hughes, National Co-Lead Partner, KPMG Venture Capital Practice, and a partner for KPMG in the US.

"In addition, the long awaited influx of IPOs appears to be on the horizon.  Already in the first half of the year we've seen a significant increase in companies going public – with the likes of Docusign and Zuora in the US, Adyen in Europe, and Ping An in China.  Post-IPO performance has been particularly strong in the US and we anticipate this will likely spur additional activity in the coming quarters."

Q2 '18 Key Highlights

• Global VC investment rose from $58 billion in Q1'18 to $69.8 billion in Q2'18, a solid increase buoyed by five $1 billion+ megadeals.
• Corporate participation in global VC deals continued to rise, reaching a record 22 percent in Q2'18 of overall volume, with associated deal value hitting nearly $46 billion.
• Global first-time venture financing volume remained subdued during Q2'18 and is on pace for its lowest annual total in a decade.
• Asia set a new record for VC investment in Q2'18, with $35.9 billion raised across 466 deals. Chinese companies represented eight of the top 10 deals globally, led by a massive $14 billion deal by Ant Financial.
• The US saw 9 deals valued at $250+ million during the quarter, led by massive deals by Faraday Future and Lyft. California continued to dominate as the US VC market leader, accounting for nine of the top 10 deals in the US.
• While overall investment in Europe remained strong at $5.6 billion – deal volume, in particular for angel/seed stage deals declined for the fifth straight quarter.

US surpasses $28 billion invested for second consecutive quarter
The US saw another massive quarter for VC investment in Q2'18, with $27.3 billion invested across 1,859 deals. The largest deal of the quarter went to Faraday Future ($2 billion), with other top deals including fintech companies – Robinhood ($363 million) and Tradeshift ($250 million), and biotech companies – San Francisco-based Allogene Therapeutics ($411.8 million) and Grail ($300 million).

The IPO market in the US continued to gain strength, with pent-up demand and positive post-IPO performance contributing to a continued resurgence in US IPO activity during the quarter.  Positive exits by Docusign and Zuora, combined with strong IPOs by Dropbox, Zscaler, and others earlier in the year, have helped spur a renewed interest in IPO exits more broadly.

First-time venture financings of companies in the US remained slow during Q2'18.  Only 947 deals were made in the first half of the year, well off last year's pace of 2,545.  However, while deal volume in this quarter has been slow, the average deal size has increased significantly in 2018.  During the first half of the year there was $5.4 billion invested in first-time deals, versus $7.3 billion in all of 2017.

VC investment in Europe remains robust 
Europe continued to see strong levels of venture capital investment, with $5.6 billion in VC invested across 631 deals in Q2'18.  The top deals for the quarter included London-based fintech Revolut ($250 million), Estonian transportation company Taxify ($175 million), and London-based Freeline Therapeutics ($119 million).

The number of European VC deals declined for the fifth consecutive quarter, driven in large part by the ongoing decline of angel/seed stage deals.  First-time financings remained well off last year's pace, with only 310 such deals in the first half of 2018 versus 1,100 in all of 2017. 

Despite a slide in exit volume over the past few quarters, venture-backed exit activity in Europe remained historically healthy, especially when considering exit value tallies.  The second quarter saw over $5.7 billion in total exits, including PayPal's $2.2 billion acquisition of iZettle and Adyen's IPO on the Amsterdam Stock Exchange.

On a regional basis, the UK led the charge once again with over $2 billion invested, followed by France with over $800 million – its second highest quarterly total. In France, 15 deals at $20 million or more were raised, a testament to France's increasing prominence as a stronghold for European innovation and VC investment.   

Late stage investments continue to drive Asian market   
Asia continued to see large deals in Q2'18, with Chinese companies accounting for eight of the top 10 deals globally. In addition to the record-setting $14 billion investment in Ant Financial, Shanghai-based unicorns Weltmeister and Pinduoduo each raised $3 billion + rounds this quarter.  Other top 10 deals included Manbang Group ($1.9 billion), Ubtech ($820 million), Hellobike ($700 million) and SenseTime ($620 million and $600 million).  

The prolonged plunge in quarterly deal volume, which began in early 2016, appears to have finally plateaued, reaching a total of 466 deals during Q2'17.  

Corporate participation in venture deals also hit a new record in Q2'18, participating in over 31 percent of all deals in Asia. 

Exit activity in Asia picked up steam in the form of IPO activity, aided in part by new rule changes at the Hong Kong Stock Exchange as well as Wal-Mart's pending $16 billion acquisition of Indian e-commerce site Flipkart, which was seen as the largest exit by an Indian tech company.   However, possible concerns associated with China's Xiaomi's IPO could temper the exit outlook somewhat moving forward.

Corporate VC activity on the rise
Globally, corporate VC activity reached heights in Q2'18.   Corporates participated in over 22 percent of all deals and accounted for over $46 billion in associated deal value during the quarter.  This represents a continuing trend seen throughout the world over the past year and in particular in Asia, where corporate participation surpassed 31 percent in Q2. 

"Corporate VC participation is on the rise in every region of the world.  Corporates have become an increasingly important player in the global venture landscape as they increasingly invest in technology companies as part of their own efforts to drive innovation and seek competitive advantage," said Arik Speier, Head of Technology, KPMG Somekh Chaikin in Israel.  

Strong outlook expected for remainder of 2018

Venture capital activity globally is expected to remain strong heading into Q3'18. The impact of tax reforms in the US, a significant amount of dry powder, and the continued flow of funding into the VC world are expected to keep the VC market strong.  Autonomous driving, healthtech and biotech are expected to be big winners over the next few quarters, in addition to blockchain. 

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

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SOURCE KPMG International