Global VC investment dropped for the sixth consecutive quarter in Q2’2023 – falling from US$86.2 billion across 10,121 deals in Q1’23 to $77.4 billion across 7,783 deals in Q2’23, said KPMG recently.
Increasing interest rates, stubbornly high inflation, domestic and geopolitical challenges — including the protracted war in Ukraine, and ongoing concerns about the stability of the global banking system all combined to make it a challenging quarter for global VC investment, despite global interest in Generative AI, the firm noted.
In Asia, VC investment fell for the 6th consecutive quarter, reaching only $20.1 billion, as Chinese investors continued to hold off on large deals, according to KPMG Private Enterprise's Venture Pulse report.
The Americas accounted for the largest share of VC investment with $42.9 billion invested including six $400 million + mega-deals during the quarter, the report stated.
European investors also remained on the sidelines, falling for the 4th consecutive quarter – to $13.5 billion invested, the report added.
Highlights of global VC investment: Q2’23
- Global Corporate Venture Capital-participating investment was also slow in Q2’23, accounting for $39.7 billion in investment, compared to $45.9 billion in Q1’23.
- Global first-time VC financing remained weak in H1’23, accounting for just $17.1 billion globally.
- Global exit value continues to be muted and only increased slightly from a record low of $45.5 billion in exit value in Q1’23 to $51.5 billion in exit value in Q2’23.
When it comes to mega deals, there was a decline in numbers this quarter with some notable exceptions. - US-based payments company Stripe’s $6.9 billion raise was by far the largest VC round of the quarter globally.
- After Stripe, Singapore-based online marketplace startup Shein raised the next largest deal ($2 billion), followed by US artificial intelligence startup Inflection ($1.3 billion) and India-based educational technology company Byju’s ($700 million).
- Eyewear retailer Lenskart, also based in India, rounded out the largest 5 deals with a $600 million round. Overall, the top 10 deals globally were spread among 8 different countries.
Surging investment in AI
Investment in artificial intelligence remained robust in Q2’23, KPMG said.
Investor interest in AI has continued to surge in the wake of OpenAI’s introduction of ChatGPT in late 2022, and the announcement of Microsoft’s $10 billion investment, the firm noted.
In Q2’23, Google made a $450 million investment in Anthropic, while Amazon announced that it would make two language models available through its Amazon Web Services to support the building of bots by its customers, according to the report.
Microsoft-backed AI firm Inflection also had a massive $1.3 billion deal late in the quarter, KPMG observed.
AI has quickly become a target sector for VC investors who are looking for their next home run or experiencing the fear-of-missing-out (FOMO), in part because of the multiplier effect that AI offerings could have in driving widespread disruption across industries, KPMG pointed out.
Trends of global VC investment to watch for in Q3’23
Overall global VC investment is projected to remain relatively steady going into Q3’23, according to KPMG.
Ongoing geopolitical challenges, lack of confidence in exit opportunities, economic concerns and the continued potential for interest rate hikes will continue to impact deal volume despite ongoing record liquidity, the firm said.
“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, prioritising 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, Partner, Global Head of KPMG Private Enterprise and Head of Markets, KPMG International.
