VC Activity Drops 20% in 2016

 

vcchartVenture capital deals dropped 20% in 2016 according to Venture Pulse, a quarterly report on global VC trends published by KPMG.

After two strong years, both venture capital (VC) dollars invested and the number of deals in the United States declined substantially in 2016. Total VC investment in 2016 shrank to $69.1 billion after climbing from $68.9 billion in 2014 to $79.3 billion in 2015.

Total deal count declined by more than 20 percent in 2016 to 8,136, from 10,468 in 2015 and 10,550 in 2014.

Year-over-year quarterly comparisons also illustrate the continued lull in US venture investing. Relative to the final quarter of 2015, US VC investment fell by nearly 25 percent in Q4’16, while the count of completed financings slid by 27 percent.

“2016 was a reality check for the VC market,” said Brian Hughes, National Co-Lead Partner, KPMG LLP’s Venture Capital Practice. “Investors drew back considerably. They paused, re-evaluated and focused on their existing portfolios and gave greater scrutiny to deploying new money to both new and existing investments.”

Unicorns and IPOs
The creation of both unicorns and IPOs was in short supply during 2016. In fact, the 2016 IPO market for VC-backed companies in particular is said to have been the worst since 2013. A bleak IPO market led to significant market skepticism of potential valuations.

There are indications, however, that the tide is turning for the IPO market. The success of Twilio, Coupa and others has spurred some optimism that the IPO market will open again in 2017. Snap, the parent company of Snapchat, has filed for an IPO which is expected toward the end of the first quarter. Other companies are also predicted to follow suit.

As the IPO market weakened in 2016, corporate M&A became even more crucial for venture investors’ liquidity prospects. The $42.4 billion in exit value achieved via that exit route was the second-highest tally of the decade, only below the massive $68.8B notched in 2014.