KPMG has released yesterday its global venture pulse report for the third quarter of 2023.
The value of venture capital investment into UK businesses remained stable in the third quarter of 2023, and rose in the rest of Europe, according to the KPMG Global Venture Pulse report.
The report shows that $5.2 billion was invested in UK businesses between July and September, down marginally on the $5.6 billion raised in the second quarter of 2023. Deal volumes however, continued to fall with 469 deals completed during that period, down 34 per cent on the 713 deals completed in the second quarter, and 44 per cent down on the same period last year.
Given the uncertain geopolitical and macroeconomic environment — including concerns about valuations, potential returns, the lack of exits, high interest rates, and other factors – the time to complete venture capital deals slowed considerably across most regions of the world during the third quarter, the firm added. Global VC investment fell from $81.4 billion across 9,563 deals in the second quarter of 2023 to $77.05 billion across 7,434 deals in the third quarter of 2023.
Meanwhile, Europe managed to buck the downward investment trend, attracting $17.3 billion in the third quarter of 2023, compared with $16.4 billion in the second quarter, the report reveals. This occurred despite a decline in deal volume from 2,454 to 1,671 during the same period.
Two $1 billion+ megadeals accounted for more than the difference in investment quarter-over-quarter: a $2.3 billion raise by France-based battery company Verkor and a $1.6 billion raise by Sweden’s green steel manufacturing company H2 Green Steel. The two megadeals highlight the strength of the cleantech market in terms of attracting large venture capital investments, the firm said.
“Despite the global slowdown in VC investment, more than $15 billion has been invested in UK businesses this year. That said, deal activity is still slow; where a deal once could have been completed in six months, now it might take twice that. Everything is simply taking longer as investors are more cautious, asking more questions, and doing more due diligence than they might have in recent years as they identify companies with well-defined paths to profitability,” Warren Middleton, lead partner for KPMG’s Emerging Giants, Centre of Excellence in the UK, said.
The electric vehicle (EV) and automotive space saw continued activity. In recent quarters, a number of large automakers announced or made major investments in EV production, ancillary activities, and EV battery production in the UK – including BMW, which announced a £600 million ($729 million) investment in EV production, the firm said. Three China-based EV companies were also among the largest deals this quarter, including a $1 billion raise by Rox Motor, a $969 million raise by Neta Auto, and a $600 million raise by Farizon.
Venture capital investment in other regions of the world was quite weak compared with recent historical norms, the firm added. In the Americas, VC investment dropped to $38.6 billion in the third quarter of 2023, compared with $39.8 billion in the second quarter of this year, and its lowest level since the fourth quarter of 2019. VC investment in the Asia-Pacific region, meanwhile, dropped to $20.3 billion in the third quarter of 2023, from $24.2 billion in the second quarter of this year – its lowest level since the first quarter of 2017, the report reveals.
Investor interest in AI continues to
AI continued to attract increasing interest from VC investors globally and across regions, including a $631.6 million raise by UK-based Conigital, a company focused on fleet automation, a $500 million raise by US-based cloud data platform Databricks, a $414.8 million raise by China-based intelligent EV manufacturer Avatr Technology, and a $225.9 million raise by Germany-based defence AI company Helsing, the firm said.
Steady course expected
KPMG expects venture capital investment to remain relatively soft heading into the fourth quarter of 2023, given ongoing uncertainties in the global VC market and a heightened level of investor caution. However, energy, cleantech, and AI, are expected to remain highly attractive to VC investors across much of the world, the firm continued.
“So far, obsession with AI has dominated the headlines in 2023, but as we head into the fourth quarter of 2023, we are seeing more investors turn to the ESG agenda and particularly cleantech,” Nicole Lowe, head of KPMG’s Emerging Giants Centre of Excellence in the UK, said. “As we move ever closer to net zero targets across the globe, the green space is evolving rapidly and cleantech and related energy independence, are pulling in large financings globally. Legislation ranging from the US Investment Reduction Act to large subsidies, tax breaks and regulatory overhauls in Europe are increasingly capturing the attention of accelerators looking to support startup ecosystems in this high growth sector.”