Global VC market falls from $86 billion in Q4’22 to $57.3 billion in Q1’23 as market uncertainty intensifies

Global VC investment sank from $86 million across 9,619 deals in Q4’22 to $57.3 billion across 6,030 deals in Q1’23 as the major uncertainties in the market showed no sign of waning, according to the Q1’23 edition of Venture Pulse – a quarterly report published by KPMG Private Enterprise on VC trends globally and in key jurisdictions around the world. The protracted war in the Ukraine, increasing interest rates, stubbornly high inflation, domestic and geopolitical challenges, and concerns about the stability of the global banking system all combined to make it a difficult quarter for VC investment across all regions.

The decline in VC investment was particularly stark year-over-year, with the total seen in Q1’23 less than a third of the total invested during Q1’22 ($177.6 billion). Every region saw VC investment fall to levels not seen in years during Q1’23. The $33.1 billion raised in the Americas was the lowest level since Q1’18, while the $9.8 billion raised in Europe was the lowest since Q3’18, and the $13.5 billion raised in Asia was the lowest since Q2’15.

US-based payments company Stripe’s $6.5 billion raise was by far the largest VC round of the quarter globally, although it came with a steep cut to the company’s valuation—from $95 billion after its last funding round in Q1’21 to $50 billion in Q1’23. After Stripe, US-based alternative energy infrastructure Generate Capital raised the next largest deal ($800 million), followed by China-based EV automaker Zeekr ($750 million), and US-based cycling and running platform Zwift ($620 million). In Europe, UK-based AI-driven open banking platform Abound raised the largest deal of the quarter ($601 million).

“It was an extremely challenging quarter for the VC market globally, in part because every region faced similar struggles—including intensifying market uncertainties,” said Conor Moore, Head of KPMG Private Enterprise in the Americas Region & Leader, KPMG Private Enterprise Emerging Giants Network, KPMG International. “If there was one bright star this quarter, it was most certainly the alternative energy and cleantech sector, which saw companies across regions still attracting large deals.”

• Global VC investment was $57.3 billion in Q1’23—the lowest level of quarterly investment since Q2’17, and a sharp decline both quarter-over quarter (compared to $86 million in Q4’22) and year-over year (compared to $177.6 billion in Q1’22).
• VC investment in the Americas was $33.1 billion across 2,542 deals in Q1’23, a decline from $44 billion across 4,050 deals in Q4’22.
• VC investment in Asia dropped from $25.5 billion across 2,799 deals to $13.5 billion across 1,773 deals between Q4’22 and Q1’23.
• In Europe, VC investment fell from $15.7 billion across 2,512 deals in Q4’22 to $9.8 billion across 1,533 deals in Q1’23.
• Global CVC investment was very slow in Q1’23, accounting for $22.8 billion in investment, compared to $42.1 billion in Q4’22.
• Global first-time VC financing was very weak in Q1’22, accounting for just $5.76 billion globally.
• Global exit value dropped more than 50% quarter-over-quarter, from an already low $46.4 billion in exit value in Q4’22 to $20.3 billion in exit value in Q1’23

Despite the global uncertainty, the alternative energy and cleantech sectors continued to attract significant funding rounds – with companies across regions attracting large deals. During Q1’23, the Americas saw an $800 million raise by low carbon infrastructure company Generate Capital, a $525 million raise by carbon and environmental commodities trading company Xpansiv, and a $300 million raise by battery company One.

Asia attracted a $750 million raise by EV vehicle manufacturer Zeekr, a $442 million raise by solar energy technology company SolarSpace, and a $400 million raise by fossil fuels decarbonization company EcoCeres this quarter, while Europe saw a $228 million raise by Germany-based alternative energy leasing company Enpal and a $148 million raise by UK-based One Moto.

Jonathan Lavender, Global Head, KPMG Private Enterprise, KPMG International reflected that “While VC investment globally is expected to remain weak in Q2’23, one area we expect to see pick-up is in the area of generative AI. In the wake of the ChatGPT launch, there has been a flurry of interest in the space—which will likely drive some interesting investments over the next quarter.”

The report concludes that investment in consumer retail and D2C companies will likely remain dry, whereas alternative energy and cleantech, defence, cybersecurity, and B2B services are suggested to be the most resilient areas of global investment. with generative AI an area that could see a spike in investment.