Geopolitical and economic factors are keeping investors on the sidelines according to new data
Venture capital investment declined sharply in the second quarter of 2023, the sixth consecutive pullback for the sector.
Globally, US$77.4 billion was invested across 7,783 deals, down from $86.2 billion and 10,121 deals in the previous quarter according to new stats from KPMG Private Enterprise’s Venture Pulse Report. It was the lowest level of quarterly investment since the second quarter of 2020.
The usual suspects are subduing sentiment – interest rates, inflation, war in Ukraine and other geopolitical tensions, banking system concerns – although there are some industries that are gaining interest such as generative artificial intelligence.
AI investment saw robust investment in Q2, 2023, including a $430 million investment from Google and a $1.3 billion deal from a Microsoft-backed firm. AI’s surge in VC investment is in part because of the multiplier effect that AI offerings could have in driving widespread disruption across industries. Energy and cleantech are also in demand.
“VC investors around the world remained cautious throughout the second quarter, scrutinizing potential deals and prioritizing profitability and the long-term viability of startup business models before making any investments,” said Conor Moore, head of KPMG Private Enterprise in the Americas Region. “It’s an interesting time as we arguably have never seen this level of economic and geopolitical uncertainty converging with an exciting, potentially world changing phenomenon - AI. The battle between these two competing forces will be fascinating to watch.”
The Americas lead
The Americas remained the top region for VC investment at almost $43 billion including six mega-deals of at least $400 million; the US accounted for almost $40 billion of this. Asia is second on $20 billion with Europe at $13 billion.
Mega-deals were lower overall with some notable exceptions led by US-based payments company Stripe with a $6.9 billion raise by far the largest VC round of the quarter globally.
A recent report from the BDC revealed that the Canadian VC industry is resilient and maturing.
Looking ahead, the global VC industry is likely to remain steady in the near-term.
“We continue to see record amounts of ‘dry powder’, however, despite the surplus of capital, we anticipate investors will remain cautious in the months to come, prioritizing investment opportunities in thriving industries like Energy and AI and concentrating their funds on the most promising ventures that demonstrate a clear path to profitability,” said Jonathan Lavender, Global Head, KPMG Private Enterprise, KPMG International.
