Investors pumping more funds into a smaller number of startups

12 February 2019 Consultancy.eu

The sums of money flowing from venture investors into startups has reached its highest point in history. According to research from KPMG, a staggering $255 billion was pumped into startups last year, an increase of more than 40% compared to the year previous.

The largest deals were by a distance the investments of $14 billion in Chinese company Ant Financial and $12.8 billion in Juul, an American manufacturer of electric cigarettes. Across the board, key areas of investment included artificial intelligence, autonomous vehicles, ride sharing, healthech, fintech and biotech.

In Europe, total investments increased from $19 billion in 2017 to over $24 billion last year. In spite of Brexit looming around the corner and the growing economic uncertainty on the island, UK-based investors accounted for four of the ten largest investments in Europe - Graphore with $200 million, Nested with $156 million, Moonbug with $145 million and Monzo with $110 million. Other large deals in Europe included HometoGo with $150 million, BlablaCar with $117 million and GC Aesthetics with $97 million.

Similar to other regions, the number of transactions dropped in Europe, from 4,607 in 2017 to 3,380 last year. Globally, the number of deals decreased by more than 2,000 deals to 15,299 in 2018. According to Daniël Horn, a venture capital expert at KPMG in the Netherlands, investors are becoming increasingly selective in their financial choices amid a dropping success rate of startups. “The record level of investments show that venture capitalists are increasingly inclined to support late-stage transactions, startups that are more mature and are looking for expansion into new markets.”Venturing financing in Europe

Corporate venturing

The data from KPMG also shows that venture capital investors are getting more and more competition in their bidding from corporates. The share of corporate venturing – venture capital spending made by the private sector – has risen to almost 20% of the total amount. In comparison, in 2015 this percentage hovered around the 15% mark. Companies in the  financial services, retail, automotive and technology sectors are among the most active acquirers. 

Looking ahead at the current year year, Horn said that while the drop in the number of transactions “is concerning”, at the same time the solid number of good quality and more mature startups continue to attract investments. “We foresee that the number of companies going that will go public will increase significantly this year,” in the footsteps of for instance Uber as Lyft who both announced their IPO last year. 

John Lavender, Global Chairman or KPMG Enterprise, remarked that it is foreseeable that 2019 may not improve upon the results achieved in 2018. “However, there will continue to be a substantial amount of venture capital invested globally, particularly in safe bets and later stage companies. This will likely result in the average deal size continuing to increase while deal volume either remains steady or drops further.”

Related: Startups attract record level of funding from venture capitalists.

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