Fintech and Cleantech Win as Global Venture Capital Investments Become More Focused

Fintech and Cleantech Win as Global Venture Capital Investments Become More Focused.

As investors become more selective, fintech, cyber, supply chain and alternative energy opportunities remain hot and key beneficiaries of global VC funding, reaching $120.2 billion during Q2’22.

Investors increased focus on profitability while the Americas and Europe show most resilience, attracting $66.2 billion and $27.3 billion in VC funding, respectively, in Q2’22.

Global fundraising reached $158.6 billion at mid-year: a record pace despite market uncertainty.

NEW YORK, July 20, 2022 – Against a backdrop of geopolitical, supply chain and economic uncertainty, overall global VC investment is falling, but several sectors, including fintech and cleantech, are beneficiaries of more selective investments.

According to the Q2’22 edition of Venture Pulse — a quarterly report, published by KPMG Private Enterprise, that analyzes key VC deals and trends globally — fintech, cybersecurity, supply chain management and alternative energy and energy storage opportunities are continuing to attract significant interest from investors. This is despite global VC investment dropping to $120.2 billion across 8,420 deals in Q2’22.

The Americas attracted $66.2 billion in VC investment — over half of the total global VC investment — during Q2’22, with the US accounting for $62.3 billion of this amount. Europe’s market showed strong resilience during the quarter, attracting $27.2 billion in investment during Q2’22. Despite the second successive quarter of decline, VC investment in Europe remained high compared to pre Q2’21. Q2’22 was the most subdued in Asia, dropping to an eight-quarter low of $24.5 billion across 2,206 deals.

Investor interest in supply chain and logistics continues to grow as industry challenges continue to have an impact. Soaring global energy prices and increased concerns around energy security has driven investors to look at alternative energy and storage options. Investments in electric vehicles, battery technologies and increasingly hydrogen are becoming more attractive.

The US attracted the world’s largest VC deals during Q2’22, including a $2 billion raise by Epic Games, a $1.7 billion raise by Space X, and a $1.5 billion raise by Gopuff. With its $1.2 billion raise, Germany-based fintech company Trade Republic accounted for the fourth spot — the only company outside of the US to raise a $1 billion plus round during the quarter. In Asia, the largest deal of the quarter was an $805 million raise by India-based Dailyhunt.

With valuations declining, many tech companies performing poorly on the public markets, and no end in sight to the level of geopolitical uncertainty, notwithstanding other challenges facing the VC market globally, we’re starting to see investors instructing their portfolio companies to preserve cash,

said Jonathan Lavender, Global Head, KPMG Private Enterprise, KPMG International.

“Heading into Q3’22, this trend is expected to continue as start-ups look to survive in an increasingly challenging environment where profitability will be of critical importance.”

Key Highlights – Q2’22

• Global VC investment dropped considerably, from $165.3 billion across 11,468 deals in Q1’22 to $120.2 billion across 8,420 deals in Q2’22.
• VC investment in the Americas dropped from $89.3 billion across 5,034 deals in Q1’22 to $66.2 billion across 3,778 deals in Q2’22. The US accounted for $62.3 billion of Q2’22 investment in the Americas, down from $81.9 billion in Q1’22.
• VC investment in Asia sunk to an eight-quarter low of $24.5 billion across 2,206 deals in Q2’22.
• Despite a drop to $27.2 billion in Q2’22, VC investment in Europe remained quite strong compared to historical trends.
• Global fundraising remained very strong, with $158.6 billion raised by the end of Q2’22 — well on track to exceed the $$252.2 billion record high set in calendar 2021.
• After plummeting from $355 billion in Q4’21 to $70 billion in Q1’22, exit value dropped even further to just $50.8 billion in Q2’22.
• Global CVC-affiliated investment dropped from $76.6 billion in Q1’22 to $49.7 billion in Q2’22.

Global fundraising remains on record pace, driven by activity in the US

Global fundraising activity remained on record pace at mid-year, with $158.2 billion in fundraising by the end of Q2’22. The US helped buoy global fundraising amounts, accounting for $121.5 billion at mid-year, compared to the $138.9 billion annual record high the region saw in 2021. VC investment in cybersecurity, alternative energy, electric vehicles, and battery storage in the US held strong in Q2’22 and is well-positioned to remain hot heading into Q3’22.

Fundraising activity in Europe fell off record pace, with $13.3 billion in fundraising at mid-year, while fundraising in Asia remained very subdued compared to previous highs, with $16.9 billion raised in the first half of 2022.

No end in sight to uncertainty but interest in new tech to grow

Heading into Q3’22, the global uncertainty plaguing the world is expected to continue, which will likely continue to keep the IPO window shut and VC investment soft. Down rounds could become more common as companies are forced to raise funding rounds despite the challenging fundraising environment.

M&A activity globally could increase as investors look for deals among companies experiencing challenges and start-ups in various industries look to consolidate to improve their economies of scale and market positions. In tech, the crypto tide is likely to turn with further consolidation among firms heading into Q3’22 as many try to cope with a major sell-off in assets.

While there’s still dry powder out there, over the next quarter, VC investors are going to become a lot more critical of targets and are likely to place increasing emphasis on profitability,

said Conor Moore, Head of KPMG Private Enterprise in the Americas Region & Partner at KPMG in the US.

“We’ve been talking about potential consolidations for a while, particularly in more mature industries like e-commerce. While the top one or two or three companies in a particular space might continue to be attractive to investors, the rest will likely see a pullback. This will likely drive consolidation as companies run out of cash.”

KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. KPMG is the brand under which the member firms of KPMG International Limited (“KPMG International”) operate and provide professional services. “KPMG” is used to refer to individual member firms within the KPMG organization or to one or more member firms collectively.