Global venture capital investment dropped for the sixth consecutive quarter in the second quarter of 2023 to $77.4 billion across 7,783 deals from $86.2 billion across 10,121 deals in the first quarter of 2023, according to KPMG Private Enterprise’s Venture Pulse report.
Fundraising by VC firms globally remained incredibly subdued in Q2’23, with many established VC firms holding back raising new funds until some uncertainty in the market begins to dissipate.
Moreover, China proved a major outlier in fundraising, bucking the downward trend significantly; at mid-year, total fundraising in China exceeded the total raised during all of 2022.
According to the report, increasing interest rates, high inflation, domestic and geopolitical challenges, and ongoing concerns about the stability of the global banking system have resulted in a challenging quarter for VC investments across regions.
The Americas accounted for the largest share of VC investment with $42.9 billion, including six $400 million and mega-deals during the quarter. While VC investment in Asia fell for the 6th consecutive quarter from $22.9 billion across 3,148 deals to $20.1 billion across 2,395 deals between Q1’23 and Q2’23, in Europe, it dropped from $14.4 billion across 2,676 deals in Q1’23 to $13.5 billion across 1,861 deals in Q2’23.
Global first-time VC financing remained weak during the first half of 2023, accounting for just $17.1 billion. Global exit value increased slightly from a record low of $45.5 billion in Q1’23 to $51.5 billion in Q2’23.
However, investments in Artificial Intelligence remained robust as investor interest continued to surge. AI has quickly become a target sector for VC investors looking for their next Home Run or to avoid the fear of missing out (FOMO), in part because of the multiplier effect that AI offerings could have in driving widespread disruption across industries, said the report.
“While the last two quarters have been muted, we expect activity to be significantly higher by the end of this calendar year. The path to profitability and positive operating cash flow continues to be a critical success factor for business owners to attract funding,” said Nitish Poddar, Partner and National Leader, of Private Equity, KPMG in India.
Overall, VC investment is projected to remain relatively steady going into Q3’23. Ongoing geopolitical challenges, a 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, it added.