KPMG has published its Venture Pulse Q1’20 report, tracking venture capital (VC) activity around the globe.
Key highlights include:
KPMG Venture Pulse Q1 2020
- 10 VC deals closed in Ireland in Q1’20, worth $123 million
- Investment globally was strong, but deal volumes see significant decline
- VC investment in Asia dropped to a three year low
- COVID-19 expected to have significant impact on VC investment heading into Q2’20
- The Q1 2020 edition of the Venture Pulse report produced by KPMG analyses the latest global trends in venture capital investment data and provides insights from both a global and regional perspective. All figures cited are in USD; data for the report is provided by PitchBook
KPMG has published its Venture Pulse Q1’20 report, tracking venture capital (VC) activity around the globe. Findings show that $61 billion* of venture capital investment was raised globally in the first quarter of the year, a relatively robust deal value figure compared to historical norms. Deal volumes, however, showed a significant decline to the lowest level recorded since Q3’13 at 4,260 - a 27% decline on the previous quarter.
The strong investment value suggests that a robust pipeline of deals limited the impact of the global COVID-19 pandemic in most jurisdictions. Unsurprisingly, however, VC investment in Asia dropped significantly to a three year low of $16.5 billion in Q1’20.
In Ireland, ten companies collectively raised $123 million in venture capital funding, with ACT Venture Capital participating in three of the top 5 deals with Fenergo, Cubic and GridBeyond, and Enterprise Ireland involved in four of the top 10 deals – Payslip, Code Institute, Cerebreon and Output Sports.
- IT company Fenergo, a developer of an enterprise regulatory software designed to manage client onboarding lifecycle, raised $80 million. The funding will be used to enhance its product offering and may also facilitate the acquisition of new business units and capabilities of strategic importance.
- Cubic, a telecommunication services provider, raised $12.4 million of venture funding to support further development of its software connectivity platform.
- GridBeyond, a provider of smart grid optimisation technology, raised $11.7 million. The funds will be used to further expand the company's business offerings, increase market share and establishing operations in new territories.
- Ekco, a cloud services company, raised $9.1 million of venture funding, supported by EUR 20 million of debt financing in the form of a loan from Ulster Bank.
- Payslip, a Mayo-based provider of technology solutions for global payroll processes, raised $3 million, with funds raised to be used to take on more employees and to accelerate client acquisition across Europe and the US.
A further $7 million was raised collectively by Irish companies Code Institute, Cerebreon, Output Sports, Getvisibility and Change Donations.
However, it is important to note that the global pandemic caused numerous jurisdictions to shutdown large portions of their economies and severely curtail the movement of people both locally and globally. With restrictions expected to last well into Q2’20 at a minimum, the VC market outlook for the next quarter is expected to be very grim in most regions of the world. Many investors are expected to sit on the fence until the impacts of the pandemic are better understood.
Commenting on VC activity in Ireland during Q1’20, Anna Scally, Partner and Head of Technology and Media at KPMG in Ireland said: “It’s likely Q1 figures show the calm before the storm in terms of the impact the global COVID-19 pandemic is having here in Ireland. Irish companies raising funds in Q2 will likely find it more difficult to achieve the valuations they might have expected only a short time ago. Equally, while VC investors may have a substantial amount of dry powder, they will be under pressure to hold that money for a number of months to see how the situation plays out.”
Anna continued saying: “Young startups are going to be hit particularly hard as they’re more high risk and come with a much longer lead time before we can see their products and services getting to the market. It’s important that these companies stay focused on their survival for now, to ensure they are in the strongest possible position when we reach more stable times.”
- Global VC investment dropped from $65.6 billion in Q4’19 to $61 billion in Q1’20, despite 5 $1 billion+ mega-deals.
- The volume of global VC deals declined 27%, falling from 5,820 deals in Q4’19 to 4,260 in Q1’20. The number of VC deals has not been this low since Q3’13.
- VC investment in the Americas rose slightly – from $33.5 billion in Q4’19 to $35.3 billion in Q1’20. The US drove the vast majority of this investment, accounting for $34.2 billion of the Americas total. Europe also saw a solid increase in investment – from $7.9 billion in Q4’19 to $8.8 billion in Q1`20.
- Asia saw a 31% decline in funding this quarter – dropping from $23.8 billion to $16.5 billion, particularly informative given it was the region first hit by COVID-19.
- Global corporate participation in VC deals reached a record 28.8% in Q1’20, contributing $31.6 billion in investment.
- Fintech saw major global investment in Q1’20 as numerous digital banks received raises, including US-based Chime ($700m), UK-based Revolut ($500m), Sweden-based Klarna ($200m), and Australia-based Xinja ($160m).
- Benevolent and philanthropic investing increased as investors look to support companies looking for a vaccine or that have innovative ways of dealing with coronavirus.
VC investment in Europe rises, driven by strong geographic diversity
While the number of VC deals in Europe dropped from 1,262 in Q4’19 to 923 in Q1’20, VC investment in the region rose from $7.9 billion to $8.8 billion. Europe’s strength continued to be driven by the growing geographic diversity of investment. The top five deals in Q1’20 included companies from five countries, including UK-based Revolut ($500m), Germany-based Lilium ($240m), Israel-based AppsFlyer ($210m), Sweden-based Klarna ($200m), and France-based Colonies ($197m).
Despite its official departure from the EU at the end of January, the UK saw a surge in VC investment in Q1’20 - with $3.2 billion compared to $2.1 billion in Q4’19. At the same time, Germany-based VC investment increased nominally to $1.37 billion, while France had its second strongest quarter of VC investment ever – with $1.36 billion in investment.
VC investment in the US remains strong in Q1’20
While investment in the U.S. remained strong during the quarter with $34 billion invested across 2,298 deals, the sudden emergence of COVID-19 created significant economic turbulence and uncertainty, and major waves in the public markets. A significant number of in-progress IPOs ground to a halt, with a number of companies planning to postpone their offerings indefinitely.
Deal sizes were quite robust in the early part of Q1’20, led by Waymo’s $2.25 billion round and a $1 billion raise by cleantech infrastructure investor Generate Capital. The largest deals of the quarter went to companies in finance, B2B productivity, aerospace, entertainment, network management, and autonomous driving.
Given that the US and global markets are operating in unprecedented times, U.S.-based VC investors are poised to become even more cautious with their investments moving forward. They will likely also need to re-evaluate the needs of their existing portfolio companies given the changing business environment.
Asia-based VC falls to three year low amid COVID-19 despite mega-deals
VC investment in Asia dropped significantly – to a twelve-quarter low of $16.5 billion – despite 3 deals at, or over $1 billion: a $3 billion raise by Indonesia-based Gojek, a $3 billion raise by China-based Kauishou, and a $1 billion raise by China-based Yuanfudao.
As the first country to deal with COVID-19, it was not surprising that both VC investment and deals volume in China plummeted in Q1’20 - to $8.9 billion across 481 deals. At the same time, the $1 billion raise by edtech company, Yuanfudao, at the end of the quarter highlighted the potential of companies in certain industries to buck the downward trend due to their sudden applicability. After a record-breaking $6 billion in Q4’19, VC investment in India fell to just $2.2 billion in Q1’20.