Q1’2017 edition of KPMG’s Venture Pulse Report, gives an insight into some of the key events in the first quarter and projects trends and opportunities in venture capital investing for the year ahead.
The first quarter saw a continued focus on safer bets, resulting in longer decision cycles and increased attention on late-stage deals in most markets worldwide. In a related trend, Q1 has seen a continued concentration of capital in a smaller number of large VC funds, especially in the US and Europe, as investors reduce their risk exposure by focusing on a broader range of investments over a long fund lifespan. Angel and seed investment remained down in most global markets, with new startups needing to demonstrate more than a visionary idea to gain investor backing.
There was a general caution with regards to investor activity throughout Q1, a trend which has continued from Q4’16. Global investor activity remained steady, though, there was a decline when compared with the highs it had witnessed in 2015 and 2016, on account of large deals in the US and Asian markets. But, the number of deals have been on a decline since Q4’16.
Investors in Asia remained cautious in Q1’17, with the number of VC deals plunging for the second straight quarter. Despite the declining number of deals, investment in the region grew slightly, helped by six $250 million+ mega deals. A number of unicorns also appeared during the quarter, each surpassing the billion dollar valuation mark during Q1’17. Corporate VC continued to be a strong component of VC investment in Asia during the quarter, as more and more traditional corporates recognized the growing imperative to innovate.
Though, 2016 was rife with uncertainty, looking ahead to Q2’17 and beyond, investor caution is expected to linger across most regions. However, positive signs indicate that the VC market may be poised for a more substantial rebound as government positions in the US and Europe become clearer.
Talking in the Indian context, the numbers remained low during Q1’17, with 102 deals for $976 million, despite positive investor sentiment. Deal volume was down from the quarterly average of 234 on 2015 and 2016. Defying the global trend of VC investment concentrated on proven, later-stage companies, VC funders in India are showing interest in early-stage and seed deals.
The Indian arms of global venture capital firms in particular are choosing to back strong 2- to 3-year-old companies instead of more mature companies, with an eye to making a higher profit upon exit. It can be attributed to the continued maturation of India’s start-up ecosystem as business models are strong, and investors are better able to swiftly ascertain which ideas will excel in the market.
Looking at the Indian scenario, a higher volume of small deals is expected as companies and VCs alike have become more cautious about where and with whom to partner. VC investment has bounced back in India, even as the number of completed financings has dropped. Corporate financiers as well as VCs both foreign and domestic, have shown a significant interest in the Indian startup ecosystem.
Due to the increasing maturity in business models and technology, Indian start-up companies with a clear technology based offering have been attracting a lot of VC interest. There is a high level of activity in the early stages, though many of them don’t get reported in the media. FinTech, Edtech, Healthtech and other consumer tech companies are still the favorites. With the industry expecting some large fund infusions, strategic consolidations and IPOs, the coming quarter is expected to be an exciting one for the Indian Market.
(Opinion piece by Sreedhar Prasad, Partner, Internet Business & Start-ups, KPMG in India)
Source: Economic Times