“Drop” in global VC investments: The figures for Europe, USA and Asia

Venture capital investment has fallen to its lowest level since the second quarter of 2019

The downward trend for Venture Capital (VC) investments continues, following the general decline recorded by global investments despite the increase in transactions in the energy sector. Europe was hit the hardest, with VC investment falling from 21.2 billion dollars at just 12.9 billion dollars in the fourth quarter of 2022.

In general, the U.S. leads in total investment with 36.2 billion dollars, followed by Asia at 22.6 billion dollars. However, global fundraising is likely to remain subdued in the first quarter of 2023.

More specifically, according to the latest report by the global organization of independent firms providing Audit, Tax and Advisory services, KPMG, “Private Enterprise Venture Pulse“, global VC investments fell for the fourth consecutive quarter, in the fourth quarter of 2022 – from 102.2 billion dollars through 9,767 transactions at 75.6 billion dollars through 7,641 transactions. Global investment has fallen to its lowest level since the second quarter of 2019.

The decline occurred despite large trades in the energy sector, including alternative energy vehicles, battery technologies and alternative energy production and distribution technologies, as governments seek to ensure energy independence and meet their climate commitments.

America and Asia attracted the largest trades during the quarter, attracting the largest share of VC investments globally in the fourth quarter of 2022. The U.S. recorded the highest percentage of investments, followed by Asia, despite attracting three major transactions worth more than US$ 500 million. during the quarter. The top transactions from China include GAC Aion (US$ 2.56 billion) and SHEIN (US$ 1 billion) and the largest transactions in the US Anduril (US$ 1.48 billion) and TerraPower (US$ 830 million).

“Total investment continued to decline this quarter, falling to its lowest level since the second quarter of 2019. The combination of economic and geopolitical pressures, alongside turbulent capital markets and low IPO activity, have held back VC investment,” says Conor Moore, Head of KPMG Private Enterprise in the American Region & Co-Leader, KPMG Private Enterprise Emerging Giants Network, KPMG International. “We continue, however, to see encouraging levels of investment in the new energy and electric vehicle ecosystems as VC entrepreneurs continue to align with government initiatives and incentives in the areas considered critical to energy independence.”

Large rounds of funding from alternative energy companies include U.S.-based nuclear reactor company TerraPower (US$830 million), China-based Hydrogen Energy (US$631 million), Estonian-based renewable energy developer Sunly (US$196 million) and hydrogen-based energy company Tree Energy Solutions, based in Belgium (US$ 122 million).

Investments in the electric vehicle industry overshadowed most other sectors, with large funding rounds from Chinese electric vehicle maker GAC Aion (US$ 2.56 billion), US$ 450 million battery technology company Form Energy (US$ 450 million) and Chinese Voyah Car Technology (US$ 630 million), US14 Technologies battery producer Group14 Technologies (US$ 614 million) and Swedish electric vehicle company Einride (US$ 500 million).

“The prolonged uncertainty in the investment environment due to the mix of negative macroeconomic aggregates, geopolitical tension and disruption to supply chain security (focused on energy) continues to have a negative impact on the number and value of VC transactions for another quarter. Access to liquidity, the attractiveness of the sector and the level of valuations will be the forces that will shape the market in terms of funding and disinvestment in the near future.”, commented Dimitris Lambropoulos, Partner, Deal Advisory, KPMG in Greece.

Key points – fourth quarter 2022

Global VC investments fell from US$ 102.2 billion through 9 767 transactions in the third quarter of 2022 at US$ 75.6 billion through 7 641 transactions in the fourth quarter of 2022.

VC investments in America fell from US$ 49.6 billion through 4 022 transactions in the third quarter of 2022 at US$ 39.2 billion through 3,322 transactions in the fourth quarter of 2022, with the US attracting investments of US$ 36.2.

VC investments in Asia fell from US$ 30.4 billion through 3 052 transactions in the third quarter of 2022 at US$ 22.6 billion through 2 157 transactions in the fourth quarter of 2022.

VC investments in Europe fell from US$ 21.2 billion through 2 476 transactions at US$ 12.9 billion through 1,936 transactions in the fourth quarter of 2020.

VC corporate investment declined for the fourth consecutive quarter. Total Corporate Venture Capital (CVC) investments fell from US$ 108 billion in the fourth quarter of 2021 at US$ 36.5 billion in the fourth quarter of 2022.

The value of divestments fell dramatically year-on-year – from US$ 1.427 trillion through 4 174 divestments in 2021 to just US$ 308.8 billion through 2 997 divestments in 2022. The decline was most notable in the U.S., where the total value of disinvestments fell from US$ 753.2 billion to just US$ 71.4 billion. .

Liquidity remained at record levels. During the year, VC companies raised over US$ 250 billion, the third largest amount in the last 10 years. The U.S. took the lead, amassing a record amount of US$ 162 billion in 2022, with a much smaller volume of funds.

Liquidity is expected to help the VC market remain stable despite rising uncertainty

Ahead of the first quarter of 2023, VC investment worldwide is expected to remain subdued, with consumer-focused businesses under the most pressure. The IPO window, particularly in the US, will likely remain closed for much of 2023, with no particular indication that it will fully reopen in the first half of the year. As companies face a liquidity problem, there will likely be an increase in M&A activity.

“Globally, we continue to see downward pressure on valuations in early 2023, resulting in many companies postponing fundraising efforts in the hope of better times ahead,” commented Jonathan Lavender, Global Head, KPMG Private Enterprise, KPMG International. “However, these companies will not be able to last indefinitely as they start to deplete cash reserves.”

You can find KPMG’s Venture Pulse report here

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