Fintech and cleantech win as global venture capital investments become more focused

Investors increased focus on profitability, attracting $66.2 billion and $27.3 billion in VC funding, respectively, in Q2’22

Global fundraising reached $158.6 billion at mid-year: a record pace despite market uncertainty.

Against a backdrop of geopolitical, supply chain and economic uncertainty, overall global VC investment is falling, but several sectors, including fintech and cleantech, are beneficiaries of the more selective investments.

According to the Q2’22 edition of Venture Pulse — a quarterly report, published by KPMG Private Enterprise, that analyzes key VC deals and trends globally — fintech, cybersecurity, supply chain management, alternative energy and energy storage opportunities are continuing to attract significant interest from investors. This is despite global VC investment dropping to $120.2 billion across 8,420 deals in Q2’22.

Investor interest in supply chain and logistics as a sector continues to grow as industry challenges continue to have an impact. Soaring global energy prices and increased concerns around energy security has driven investors to look at alternative energy and storage options. Investments in electric vehicles, battery technologies and increasingly hydrogen are becoming more attractive.

Manav Prakash, Advisory Partner at KPMG in Bahrain, commented on the report findings and said “The VC environment is definitely undergoing a shift, with a larger emphasis on profitability, cash flows and cost control. Fintech, cybersecurity, healthcare, supply chain/logistics management continue to attract significant interest, in addition to investments in alternative energy, energy storage and sustainability”

• Global VC investment dropped considerably, from $165.3 billion across 11,468 deals in Q1’22 to $120.2 billion across 8,420 deals in Q2’22.
• VC investment in the Americas dropped from $89.3 billion across 5,034 deals in Q1’22 to $66.2 billion across 3,778 deals in Q2’22. The US accounted for $62.3 billion of Q2’22 investment in the Americas, down from $81.9 billion in Q1’22.
• VC investment in Asia sunk to an eight-quarter low of $24.5 billion across 2,206 deals in Q2’22.
• Despite a drop to $27.2 billion in Q2’22, VC investment in Europe remained quite strong compared to historical trends.
• Global fundraising remained very strong, with $158.6 billion raised by the end of Q2’22 — well on track to exceed the $$252.2 billion record high set in calendar 2021.
• After plummeting from $355 billion in Q4’21 to $70 billion in Q1’22, exit value dropped even further to just $50.8 billion in Q2’22.
• Global CVC-affiliated investment dropped from $76.6 billion in Q1’22 to $49.7 billion in Q2’22.

Global fundraising activity remained on record pace at mid-year, with $158.2 billion in fundraising by the end of Q2’22. The US helped buoy global fundraising amounts, accounting for $121.5 billion at mid-year, compared to the $138.9 billion annual record high the region saw in 2021. VC investment in cybersecurity, alternative energy, electric vehicles, and battery storage in the US held strong in Q2’22 and is well-positioned to remain hot heading into Q3’22.

Fundraising activity in Europe fell off record pace, with $13.3 billion in fundraising at mid-year, while fundraising in Asia remained very subdued compared to previous highs, with $16.9 billion raised in the first half of 2022.

Heading into Q3’22, the global uncertainty plaguing the world is expected to continue, which will likely continue to keep the IPO window shut and VC investment soft. Down rounds could become more common as companies are forced to raise funding rounds despite the challenging fundraising environment.

M&A activity globally could increase as investors look for deals among companies experiencing challenges and start-ups in various industries look to consolidate to improve their economies of scale and market positions. In tech, the crypto tide is likely to turn with further consolidation among firms heading into Q3’22 as many try to cope with a major sell-off in assets.

“Despite the drop in VC investment in many areas in the world, one of the Top 10 Global Financing Deals in Q2’22 also included a major deal in the GCC region, with $714 million being raised by Kitopi - a UAE headquartered FoodTech entity that manages a cloud kitchen platform with over 3,000 employees across UAE, KSA, Bahrain, Qatar and Kuwait.” Nicolas Ribollet, Advisory Partner at KPMG in Bahrain, added.