Global VC investment likely to fall throughout final quarter of ’22

NEW YORK, Oct 19, (AP): Global VC investment is likely to continue to fall throughout the final quarter of 2022 as Q3 sees the third consecutive drop in deals and funding value whilst signs indicate increased conservativism amongst investors amid rising fears of a global recession.

According to the Q3’22 edition of - a quarterly report, published by KPMG Private Enterprise, that analyzes key VC deals and trends globally, global VC funding fell to a nine-quarter low of $87 billion in Q3’22; levels not seen since 2020 in the Americas, Europe, and Asia.

The decline in the number of deals was even more marked during the quarter, with just 7,817 VC deals globally-the lowest volume since Q4’17.

While annual fundraising reached $220 million at the end of Q3’22, on track to rank as the second highest year for fundraising ever next to 2018, VC investors were more critical with their investments, becoming increasingly cautious, placing a laser focus on profitable companies, and those with sustainable business models or market-leading innovators, such as SpaceX which closed $1.9 billion in capital.

Consumer facing companies such as e-commerce and food delivery groups are losing traction amongst investors. Rising inflation, climbing interest rates and recessionary concerns are raising questions about a potential shift in consumer buying behaviours.

However, a growing energy crisis - particularly in Europe - the continued effects of the pandemic, and increased pressures on businesses means some sectors remain of highinterest to investors. Clean energy, fintech, biotech, cyber and B2B; including AI and machine learning start-ups and scale-ups, continue to be popular.

Commented: “It’s not doom and gloom for all start-ups and scale-ups however, increased conservatism and caution from investors and an overall tighter landscape may push many to consider alternative financing sources.”

During Q3’22, all major regions attracted at least one $1 billion+ megadeal. As well as US-based SpaceX raising $1.9 billion, Germany-based Celonis raised $1.4 billion, Chinabased Sunwoda EVB raised $1.2 billion, Sweden-based Northvolt raised $1.1 billion, and US-based TerraWatt Infrastructure raised $1 billion.

Energy attracted a number of big raises across regions in Q3’22. In China, electric vehicle battery maker Sunwoda EVB raised $1.1 billion, lithium battery company Hubei Rongtong High Advanced Material raised $744 million, intelligent electric vehicle platform company Avatar Technology raised $377 million, and solar power research and manufacturing company Gokin Solar raised $369 million.

In the US, electric vehicle infrastructure company TerraWatt Infrastructure raised $1 billion, nuclear innovation company TerraPower raised $750 million, and ESG commodities marketplace company Xpansiv raised $400 million. While Europe saw mostly smaller deals in the space, Sweden-based EV battery company Northvolt raised $1.1 billion.

Both VC investment and the number of VC deals tumbled across the Americas, falling from $76.6 billion across 4,607 deals in Q2’22 to $45.6 billion across 3,364 deals in Q2’22. The US attracted the bulk of funding in the region during the quarter ($43 billion). VC investment dropped from $2 billion in Q2’22 to $1.4 billion in Q3’22 in Canada, from $988 million to $516.8 million in Brazil, and from $714 million to $231 million in Mexico.

Fundraising

Despite all this, at the end of Q3’22, total fundraising in the Americas reached $156.2 billion, already eclipsing the previous annual high of $151.9 billion seen in 2021. While the majority of this fundraising occurred in the US, both Canada and Brazil also experienced robust fundraising compared to previous years.

VC investment in Asia fell for the third straight quarter in Q3’22, sinking to $21.7 billion. After falling to a multi-year low of $10 billion in Q2’22, VC investment in China rose to $12.9 billion Q3’22. Other jurisdictions, meanwhile, saw VC investment plummet. In India, VC investment dropped more than 50%-from $7.5 billion to $2.6 billion quarter-over-quarter, while VC investment fell from $1.6 billon to $1.2 billion in Japan and from $1.1 billion to $746 million in Australia.

Europe saw VC investment sink from $31.1 billion in Q2’22 to $18.7 billion in Q3’22 as a number of jurisdictions saw VC investment fall by 50% or more, including the UK, Israel, and Ireland. Quickly rising interest rates, sharply increasing energy costs, growing concerns about a potential recession, and the ongoing war between Russia and the Ukraine combined to make investors in the region highly cautious during the quarter.

Business productivity attracted significant interest from VC investors in Europe during Q3’22, led by a $1.4 billion raise by Germany-based Celonis.

With no end in sight to the global macroeconomic uncertainty VC investment is expected to remain subdued heading into Q4’22 as VC investors only become more cautious.

While energy, business productivity, and cybersecurity will likely remain relatively hot tickets for VC investors globally, other sectors could see a major drop-off in interest, including consumer-driven sectors like rapid food and grocery delivery.

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