VC investment in the US strong in Q2’19, reaching $31.5 billion on 2,338 deals
Deal value robust Americas and Europe but Asia remains on hold
Overall venture capital investment held steady in the second quarter of 2019, reaching $52.7 billion globally. US and European investment remained relatively robust, however, investment in Asia was weak for the second consecutive quarter, reaching only $10.1 billion, as Chinese mega deals continued a pause in activity, according to the Q2’19 edition of the KPMG Enterprise Venture Pulse Report.
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Globally, venture capital deal volume declined for the fifth consecutive quarter, reaching only 3,855 deals, as high valuations and fierce competition – particularly at the seed stage, combined to produce an evening in the pace of deal making. The drop in deal volume was particularly pronounced in Europe in Q2’19, reaching the lowest levels in the past decade, as early stage companies struggled to attract VC attention.
Key Q2’19 Global Highlights
VC Investment in U.S. continues strong in Q2’19
VC investment in the U.S. remained robust during Q2’19, reaching $31.5 billion, compared to $34.4 billion in Q1’19, the result of a strong economy, solid performance of the public markets, and expectations of lower interest rates.
During the quarter, investors diversified their investments across a broad range of industries including logistics, food delivery, aerospace, consumer durables and technology. Meat alternatives, artificial intelligence, autonomous vehicles also gained interest from investors.
The largest deals for the quarter included Flexport ($1 billion) and DoorDash ($600 million) from San Francisco, followed by New York-based automation firm UiPath that raised $568 million.
“With a significant amount of private capital still available in the market and a stable economy, we expect VC investment will continue at a solid pace into the next quarter,” said Brian Hughes, National co-leader, KPMG Venture Capital practice in the U.S.
23 New Unicorns
During Q2’19, there were 23 new unicorns globally, with 19 in the U.S. across fintech, data management, cleantech, edtech, cybersecurity, and others.
“The growing number of new unicorns reflects VC investors’ focus on late stage deals, the fact companies are remaining private longer, and the abundance of capital in the U.S. VC market,” said Conor Moore, National co-leader, KPMG Venture Capital practice in the U.S.
Meat alternatives attract investors
During the quarter, Impossible Foods also raised a $300 million funding round. This and the success of Beyond Meat’s IPO highlights the growing investor interest in meat alternatives that align with the social consciousness of the millennial and post millennial generations.
“We believe there will continue to be active investor interest in these types of sustainable food alternatives, although investors will likely be watching companies’ costs and results over the next few quarters to determine if their value propositions are truly profitable,” said Moore.
Strong IPO activity
Q2’19 saw a continuation of IPO exits in the US by several prominent tech companies, including the two ridesharing giants - Uber and Lyft. In addition to Beyond Meat’s successful IPO, video conferencing company Zoom, SaaS firm Pagerduty, social media platform company Pinterest, and cybersecurity firm Crowdstrike also made strong gains post IPO.
Also during Q2’19, Slack successfully completed the first direct listing of a US-based company.
The report says IPO activity is expected to continue to be strong heading into Q3’19 as long as the US economy remains stable.
Trends to Watch
According to the report, investment is expected to continue to diversify across sectors, although fintech, healthtech, and food delivery will continue to see strong investments. At a technology level, AI is expected to remain the hottest area for VC investors.
Europe reaches new record for deal value – as volume falls
In Europe, VC investment reached record levels this quarter, demonstrating continued resilience in the face of ongoing geopolitical uncertainty and associated challenges with Brexit. Overall amount of venture capital investment reached $8.74 billion during Q2’19. However, deal volume continued to fall – from 958 in Q1 to only 825 this quarter.
The strength of Europe’s VC market continued to be defined by the growing diversity of its innovation hubs; while VC investment in the UK was well-off of historical highs, increasing investment in the Nordic countries, France, Spain, Poland and others combined with steady investment in more established innovation centres in Germany and Israel helped keep VC investment in the region high during Q2’19.
VC investment subdued in Asia as mega-deals pause
VC investment in Asia remained slow for the second consecutive quarter – reaching just $9.6 billion on 468 deals. The continued slowdown in deal making in China likely reflects the ongoing US-China trade dispute and a corresponding increase in investors’ caution.
A shortage of megadeals contributed to the decline in VC in Asia. At the end of Q2’19, the largest 10 deals in Asia accounted for $4.6 billion in investment. By comparison, in Q4’18, the 10 largest deals accounted for $11 billion. This likely contributed to the shrinking number of unicorn births in China; in Q2’19; there were no new unicorns birthed in China – compared to 23 in the US.
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