VC Funding Down in Q1 But Report Predicts Reversal

VC Funding Down in Q1 But Report Predicts ReversalGlobal venture capital (“VC”) funding took a major dip in the fourth quarter, and the declines extended into the first quarter of 2016, according to a new report from KPMG and CB Insights. But the firms say they expect these declines to be short-lived, given the amount of liquidity around the globe hanging over from quantitative easing and other stimulus policies by major central banks.

These and other insights are shared in the Venture Pulse Q1 2016 Global Analysis of Venture Funding, published on April 13.

KPMG and CB Insights try to put things in perspective: Although the declines in funding are “disconcerting” to the VC community, the firms point out that Q1 ’16 was actually one of the highest quarters for VC fundraising since the dot-com boom of 2000.

The Wall Street Journal, by contrast, highlights that the quarterly declines in VC funding were the largest since the dot-com bust. WSJ also points out that Fidelity and T. Rowe Price (among other firms) have cut the value of their startup holdings, and mutual funds have soured on the asset class.

KPMG and CB Insights are considerably more bullish, but they admit that investors are likely to focus on companies with strong balance sheets or business models with plans to achieve profitability, instead of high-flying “moonshots.”

The KPMG/ CB Insights report attempts to answer the following four questions:

  • What is driving the decline in VC activity – and will it last?
  • Why are corporates so active in the VC market?
  • Is the Unicorn trend dead?
  • How is digital health bucking investment trends?

Some of the relevant statistics shared in the report include:

  • There were 1,829 VC deals, globally, in Q1, accounting for $25.5 billion;
  • Of these, 1,101 were in North America, accounting for $15.2 billion (60% of the global total);
  • Europe saw 338 deals, totaling $3.5 billion; and
  • Asia saw 358 deals, totaling $6.5 billion.

KPMG and CB Insights note that “unicorn creation is at a near standstill.” The term “unicorn” refers to a private company with a valuation of at least $1 billion. Existing unicorns battled negative press in Q1, and only five new unicorns were “minted” for the quarter – that’s less than half in any quarter of 2015.

Corporations are becoming increasingly active in private markets. In Q1, corporations and CVCs (“corporate venture capitalists”) participated in 27% of deals, a sharp increase from the prior year.

For more information, download a pdf copy of the report.

Jason Seagraves contributed to this article.