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Insights from KPMG's Q1 2024 Venture Capital Report: Beyond Generative AI, Which Sector Attracts the Most Investment?
KPMG has released the latest edition of its 'Venture Pulse: Global Venture Capital Trends' report, highlighting a significant decline in global fundraising. The data shows that the number of global venture capital deals dropped by 25% compared to the previous quarter. This decline is particularly evident in Series D+ funding rounds, with only 90 deals this quarter compared to 377 in the previous quarter, representing an almost 80% decrease.
Yvette Chien, Partner of KPMG Taiwan's Deputy Head of Startups & Innovation, stated that the venture capital market continued to face challenges in the first quarter of 2024. These challenges include a lack of exit opportunities, high interest rates, and geopolitical uncertainties. As a result, venture capital firms are scrutinizing potential deals more rigorously and are less willing to provide bridge funding to existing portfolio companies.
"Venture capital firms are pushing startups to cut costs to achieve profitability targets," said Yvette Chien. In the first quarter of 2024, startups raised only $75.9 billion across 7,520 funding deals. However, looking ahead to the second quarter, besides artificial intelligence, sustainable technology and biotechnology are also investment sectors worth watching.
Reflecting on Q1: Trends and Insights from the Global Venture Capital Market
Distinguished by region, in the first quarter of this year, the Americas had the highest total investment amount, with 3,205 deals totaling $38.2 billion. The United States accounted for 2,882 of these deals, with a transaction value of $36.6 billion. Among the top large investment deals were AI and machine learning startup Anthropic raising $4 billion, robotics startup Figure AI raising $675 million, asthma-focused biotech startup Areteia Therapeutics raising $425 million, and biotech startup Mirador Therapeutics raising $400 million.
Asia ranked second in investment amount, but both deal volume and value decreased compared to the previous quarter, dropping from 2,920 deals in Q4 2023 to 2,305 deals totaling $18.9 billion. This was primarily driven by several large investments in China, including $1.1 billion raised by electric vehicle startup IM Motors, $1 billion raised by AI-focused Moonshot AI, known in Chinese as Yuezhi Anmian, and $940 million raised by space technology startup Yuanxin Satellite.
Finally, Europe's total venture capital investment saw a slight increase, with 1,798 deals amounting to $17.9 billion. Notable investments included $5.2 billion raised by Swedish green infrastructure company H2 Green Steel, $431 million raised by UK fintech Neobank Monzo, $415 million raised by French AI and machine learning company Mistral AI, and $334 million raised by electric vehicle startup Electra.
Investment Hotspots Beyond AI: Sustainable Sectors Worth Watching
Looking back on the first quarter of 2024, generative AI remains one of the focal points for global investors. Among the unicorns born during this period, 10 are focused on AI, such as the AI search engine Perplexity from the United States.
Therefore, in the second quarter of 2024, industry-specific artificial intelligence solutions will continue to be a key investment area for venture capital, such as enhancing efficiency in financial services, legal, and real estate industries through AI.
In addition to generative AI, as countries worldwide intensify regulatory efforts in the energy sector and prioritize the adoption of ESG-related services, sustainable development-related fields have become another major investment hotspot.
This includes clean technologies such as electric vehicle batteries, renewable energy, biotechnology, and the healthcare industry. Additionally, due to escalating geopolitical tensions globally, the defense sector is also worth noting, particularly startups developing drones and satellites.
Reddit's IPO Sparks Positive Impact on the Market, Heat Up M&A Activity in Q2?
In addition to continued focus on generative AI and sustainable sectors, Reddit's IPO has also brought a glimmer of hope to the IPO market.
Despite the relative calmness in the global IPO market in the first quarter, except for the U.S. social media platform Reddit, Yvette Chien remarked that while Reddit's IPO wasn't expected to immediately open the floodgates for IPOs, it might prompt other companies to consider attempting an IPO.
"Investment institutions are starting to feel pressure, demanding them to open up funding channels, indicating that some companies are ready to exit," said Yvette Chien. Therefore, entering the second quarter of 2024, the global IPO market will become one of the main areas to watch, increasing the activities of companies going public through IPOs. Additionally, small-scale mergers and acquisitions will occur worldwide, mainly because some startups are unable to raise additional funds, thus becoming targets for crisis acquisitions, intellectual property acquisitions, and other acquisitions.
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