Q4’23 global VC deals volume drops to level not seen since Q3’16, despite continued VC interest in AI-focused companies says KPMG Private Enterprise Venture Pulse report

• Q4’23 global VC deals volume (7,572) drops to level not seen since Q3’16
• VC investment in Americas relatively steady at $40.1 billion in Q4’23
• VC investment drops to $13.8 billion in Europe and $18.8 billion in Asia-Pacific during Q4’23

Global VC investment sank from $531.4 billion across 51,894 deals in 2022 to $344 billion across 37,808 deals in 2023 amidst a thematic backdrop of geopolitical, macro-economic, and other challenges, including geopolitical conflicts, high interest rates and inflation, a parched exit environment, and ongoing concerns related to startup valuations. The Americas accounted for more than half of VC investment this year ($183.6 billion), while the Asia-Pacific region attracted $92.4 billion and Europe $62.3 billion, according to the Q4’23 edition of KPMG Private Enterprise’s Venture Pulse – a quarterly report highlighting VC investment trends globally and in key regions around the world.

Q4’23 was a particularly soft quarter for the VC market, with global investment falling to $74.9 billion across 7,572 deals—the lowest levels since Q2’19 and Q3’16 respectively. Europe experienced the sharpest decline in funding—from $18 billion in Q3’23 to $13.8 billion in Q4’23. The Asia-Pacific region also saw quite a slump, with investment falling to $18.8 billion in Q4’23—the lowest level since Q1’17.

As VC investors globally continued to pressure their portfolio companies to reduce costs and enhance their focus on profitability, both VC investment and deal speed slowed significantly. The one major light in an otherwise dim quarter was artificial intelligence (AI) —where investments were incredibly frothy as investor interest accelerated. AI-focused startups accounted for three of the $1 billion+ funding rounds this quarter.

“The exit values in 2021 for VC-backed companies stood at a massive $1.5 trillion. Since then, exits have faltered—with only $225 billion in exit value this year,” said Conor Moore Global Head, KPMG Private Enterprise, KPMG International. “This obviously impacts all stages of VC investment and until some of our current geopolitical and macroeconomic uncertainties are clarified, the prospects for any significant recovery in the exit market remain unlikely. There also added uncertainties with the upcoming US election.” This is all no doubt contributing to the much slower deal activity and the pull-back in investment, particularly at the later deal stages.”

2023 Key Highlights

• Global VC investment fell from $531.4 billion in 2022 to $344 billion in 2023—the lowest level since 2019.
• Global deal volume dropped to a five year low of 37,808 in 2023.
• Global Corporate Venture Capital-participating investment was $172.4 billion in 2023, down from $269.6 billion in 2022.
• CVC-participating investment dropped in all regions in 2023, with the Americas accounting for $96.7 billion, the Asia-Pacific region accounting for $44 billion, and Europe accounting for $28.2 billion.
• Global exit value dropped from $320.6 billion to $224.7 billion year-over-year.
• The median deal size dropped for Series B, C, and D+ deals in every region between 2022 and 2023; D+ deals saw the largest decline, including from $106.8 million to $60 million in the Americas, from $130 million to $59.4 million in Europe, and from $48.6 million to $29.9 million in the Asia-Pacific region.
• Unicorn VC deal flow dropped to a six-year low of $84.5 billion in 2023, down from $139.8 billion in 2022—and a far cry from the record $269.2 billion seen in 2021.

Q4’23 highlights

• Global investment fell from $85.4 billion across 8,919 deals in Q3’23 to $74.9 billion across 7,572 deals in Q4’23.
• The Americas accounted for $40.1 billion in VC investment in Q4’23, down only slightly from Q2’23’s $42.9 billion; the US accounted for $37.5 billion of the America’s Q4’23 investment.
• VC investment in Europe dropped from $18 billion in Q3’23 to $13.8 billion in Q4’23, while the Asia-Pacific region saw VC investment fall from $23.6 billion to $18.8 billion in Q4’23 over the same timeframe—the lowest level since Q1’17.
• Global CVC-participating investment dropped from $44.2 billion in Q3’23 to $33.4 billion in Q4’23.

Commenting on the India findings, Nitish Poddar, Partner and National Leader, Private Equity, KPMG in India said, “Indian economy is quite strong — capital markets at an all-time high, favorable demographics, strong GDP and a stable and active central government. However, the VC investments in the last few quarters have been muted as compared to quarters before. This is not an indication of slow down but the post COVID-19 euphoria dying down where there was

excess money supply in the system. With expected easing of interest rates, I am very confident that there will be a strong bounce back in the VC investments in the country.”

AI the big winner in Q4’23

VC investment in AI continued to accelerate in Q4’23. In the US, AI-focused companies attracted six of the ten largest VC deals of the quarter. Europe also saw three very large AI deals.

Subdued start expected for global VC market in Q1’24

Given high interest rates, ongoing global conflicts, and little sign that the IPO market will reopen fully in the first half of 2024, VC investment globally will likely remain quite subdued in Q1’24. AI will likely remain one of the most attractive areas of VC investment well into the year, while M&A activity could see some pick-up as opportunistic buyers look for bargains.