Defying expectations, global VC investment rose in Q3

While investors have every reason to be concerned about the COVID-19 pandemic, the outcome of the U.S. presidential election, and still-brewing geopolitical tensions, that hasn’t stopped investment in the venture capital space from rising in Q3 2020, marking a second straight period of growth.

In its latest Venture Pulse report, KPMG said global VC investment grew from US70 billion across 5,674 deals in Q2 to $73.2 billion across 4,861 deals in the most recent quarter. That was propelled by a considerable number of large, late-stage funding rounds across different jurisdictions, which included SpaceX in the U.S. (US$19 billion), Weltmeister in China (US$1.5 billion), and Flipkart in India (US$1.3 billion).

The report said US$40 billion went to the Americas, with the U.S. accounting for an overpowering majority (US$37.8 billion); the Asia-Pacific region also logged a continuing rebound, with US$21.1 billion in Q3’20 coming on the heels of the US$17.2 billion it saw in Q2 2020. Meanwhile, European VC investment came in at a record-breaking high of US$12.1 billion.

In 2020, VC-backed exit activity has so far surged to nearly US$250 billion; Q3 alone saw that activity reach US$155.7 billion as IPOs from Snowflake, JFrog, and Unity Software pushed through. That represents another quarter-on-quarter advance, coming right after the US$49.2-billion record in Q2 2020.

“After several quiet quarters, the IPO market for VC-backed companies rocketed into high gear in Q3’20, with a number of high-profile unicorns making successful exits,” said Conor Moore, Co-Leader, KPMG Private Enterprise Emerging Giants Network KPMG International. “Given the recent filings by several other unicorns, coupled with the explosion of SPAC transactions, Q4’20 looks on-track to continue the record-setting pace.”

While total investment is on an upswing, KPMG said VC deal activity extended its losing streak, dropping for the sixth straight quarter to reflect the lowest volume reported since Q4 2013. The number of global angel/seed-stage deals fell to 1,650, the lowest since Q4 2012; global early-stage deal volume (1,716) likewise descended to its deepest since Q2 2014.

Against the VC landscape’s transformation amid COVID-19, pharma and biotech proved to be hotbeds of VC investment in Q3 2020, led by a US$600-million raise by CureVac in Germany. By the end of the quarter, total year-to-date VC investment in the space had reached US$31 billion, comfortably above the US$27.1 billion it reported for all of 2019.

“While overall VC investment has remained surprisingly resilient given the number of diverse challenges being faced around the globe, the extended decline in funding for early stage companies causes some concern,” said Kevin Smith, co-leader, KPMG Private Enterprise Emerging Giants Network, KPMG International.

The difficulty faced by seed- and early-stage companies, he said, could have a serious longer-term impact on the VC pipeline, which would inhibit advances and innovation into new ideas and areas of the economy.

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