16 January 2017

Asian VC investments remain steady in Q416

Following 2015’s peak funding levels, 2016 was a challenging year for venture capital (VC) investment across the globe, with decreases in both the number of deals and the total value of VC investment, according to Venture Pulse Q4 2016, a quarterly report on global VC trends published by KPMG Enterprise

Worldwide venture capital activity declined by 24% year over year, though total global venture capital investment remained substantial at US$127.4 billion*. After a strong start to 2016, investor optimism quickly turned cautious and purse strings tightened over the second half of the year. Market uncertainty was further fuelled by geopolitical upheavals, including the UK’s Brexit vote and the US presidential election.

“VCs are taking this respite, triggered by global uncertainties, to reassess their portfolio and focus on only seeking out top quality deals and also in helping their portfolio companies more actively in their next level of growth,” said Chia Tek Yew, Head of Financial Services Advisory at KPMG in Singapore. “As such, whilst there was an absence of megadeals, we continue to see significant interest and development in core sectors such as fintech, insuretech, healthtech and underlying technologies in cybersecurity, artificial intelligence and Internet of Things.”

Key 2016 highlights 

• Worldwide venture capital activity declined by 24% for the year, from 17,992 completed financings in 2015 to 13,665 in 2016. 

• Globally, total deal funding declined from $141 billion (2015) to $127 billion (2016). 

• Deal funding in Asia remained steady year over year at just over US$39 billion, despite a significant decrease in megadeals in the last quarter of the year. Overall the number of deals in Asia declined by 23.1%. 

• Venture-backed exits declined 26% year over year, although signs indicate 2017 may see a renewal in the initial public offering (IPO) market. 

• Worldwide corporate participation in VC continued to grow, currently sitting at 15% of all deals. 

• First-time financings to startups, a sure sign of investor caution, dropped 27.2% from a high of US$18 billion compared to US$13 billion in 2016.

Key Q416 highlights 

• Global VC deals activity in Q416 declined 31% compared to the same quarter last year, with just 2,809 deals – the lowest deal activity since Q411. 

• VC-backed companies raised just US$21.8 billion in Q4, the lowest level of deals funding since Q114. 

• While deal activity was down, median-deal sizes remained high across almost all funding categories worldwide, ranging from a median of US$30 million for Series D+ to a median of US$1.1 million for seed deals, showing that investors were willing to pay for the right opportunities. Seed funding is funding at a very early stage of the business, possibly before the product or service has been fully developed, while Series D+ refers to funding for a more mature company. Companies often end their rounds of funding at Series C, when they are successful but continue to need money to acquire others or to scale to the next level.

• The number of new unicorns (companies with a US$1 billion valuation) minted dropped to just six in Q416, the lowest level since the term 'unicorn' was coined in 2013.

In Asia, while the total number of deals dropped dramatically, the total amount of VC invested remained steady year over year at around US$39 billion – the only region to do so. However, Q416 ended on a low note, with 24.7% less investment and 29% fewer deals than the same quarter last year.

Despite a late year slump, investment in China was up year over year – reaching a record US$31 billion invested. This despite the number of deals dropping from 516 to just 300 between 2015 and 2016. India showed an almost opposite trend, with the number of deals remaining relatively high, while total VC invested dropped over 50% from US$8.2 billion to US$3.3 billion year over year.

“Even though some VCs may still stay on the sidelines to await clearer signs of improvements in the economy, several sectors in Singapore have managed to remain attractive,” said Chia. “Technology companies have been steadily receiving funding and with artificial intelligence and cognitive learning expected to transform everyday life and business, they will continue to be appealing in 2017.” 

*Data for the report provided by Pitchbook.