With much of the uncertainty from 2016 subsiding in the U.S., there are signs of optimism in the venture capital (VC) market as total investment in the first quarter of 2017 reached $17.3B across 1,809 deals, according to Venture Pulse, a quarterly report on global VC trends published by KPMG.
"It appears that we may have reached a turning point despite a continued decline in VC deal activity in Q1 as market conditions and valuations are stabilizing," said Brian Hughes, National Co-Lead Partner, KPMG LLP's Venture Capital Practice. "Public markets have been relatively strong and the U.S. IPO market saw some solid tech IPOs late in the quarter, indicating that the market is opening. With the amount of dry powder on the sideline, the likelihood of VC deal activity accelerating over the remainder of the year is quite high."
To read the entire Venture Pulse Q1'17 report, visit https://home.kpmg.com/xx/en/home/insights/2017/04/venture-pulse-q1-17-global-analysis-venture-funding.html.
Globally, the Americas led VC investment, with the U.S. making up the lion's share of the $26.8B total. VC investment in the U.S. rose quarter over quarter supported by a number of $250 million+ megadeals. The Bay Area (San Francisco and San Jose), Boston, and Los Angeles metro areas all experienced rather significant upticks in investment based on deal value from Q4. These increases were driven by a two-prong phenomenon of late-stage mega rounds across all industries and a notable uptick in pharmaceutical and biotech investing. Meanwhile, deal activity remained relatively steady quarter over quarter, suggesting that investors remained cautious as Q1'17 brought with it a change in the U.S. administration.
IPO Market on the Rebound, Corporates up the Ante
Solid IPOs by Snap, the company behind Snapchat, and software-as-a-service companies MuleSoft and Alteryx suggest the U.S. IPO market may be opening. If this trend continues, there could be a renewal in US-based IPO activity.
Additionally, some venture-backed U.S. companies currently registering IPOs illustrate the possibilities for them in the market considering that the public markets are still coasting high and there's still a strong appetite for exposure to high-growth tech companies.
"Business process companies, those startups focused on making traditional corporates more efficient and effective, will likely represent successful IPOs through the remainder of the year," said Conor Moore, National Co-Lead Partner, KPMG LLP's Venture Capital Practice. "This is a function of less agile businesses feeling the pressure to become more nimble, more flexible and more able to protect against cyber threats."
M&A continues to drive exit value even as the IPO market begins to accelerate. In addition Corporates continue to invest in VC portfolio companies. In fact, over 14 percent of all completed venture financings in Q1'17 were from participation of corporate VCs – activity meant to help corporations compete against more agile disruptive startups in their fields and open up new avenues for growth as core business growth slows.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the independent U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's independent member firms have 189,000 professionals, including more than 9,000 partners, in 152 countries.
About Venture Pulse
The Q1 2017 edition of the Venture Pulse report produced by KPMG Enterprise's Global Network for Innovative Startup, analyzes the latest global trends in venture capital investment data and provides insights from both a global and regional perspective. Data for the report provided by PitchBook.
