Global VC investments drop 5.4% as VCs remain cautious: KPMG report

Venture Capital (VC) investments in India declined by around 42 per cent on a quarter-on-quarter (Q-o-Q) basis, dropping from $3.3 billion in the second quarter (Q2) of calendar year 2023 (CY23) to $1.9 billion in Q3CY23 as VCs remain cautious with new investments and focus on the consolidation of portfolio. 

On a year-on-year (Y-o-Y) basis, venture financing in the country fell from $3.3 billion in Q3CY22, according to data from KPMG’s Venture Pulse Q3 2023 report.  

“VCs have been reserved with new investments and focused on portfolio consolidation in the past few quarters. However, we are seeing green shoots of deal activity and expect a strong increase in the next three to four quarters. The path to profitability and positive cash flows will continue to be key performance indicators,” said Nitish Poddar, partner and national leader, private equity, KPMG in India.

The report added that VC investments were sluggish in the country in Q3CY23 as investors refrained from making large deals.

Globally, VC investments decreased by 5.4 per cent on a  Q-o-Q basis, declining from $81.4 billion in Q2CY23 to $77 billion in Q3 as VCs exercised caution before finalising deals.

The number of deals dropped from 9,563 in Q2CY23 to 7,435 in Q3.

On a  Y-o-Y basis, global venture financing has fallen by 26 per cent, declining from $105.9 billion in Q3 of calendar year 2022 (CY22).

“VC investors continued to act cautiously, taking much longer to make deals than in recent quarters, intensifying their due diligence on business models, and the paths to profitability of startups looking for investment,” the report stated.

Meanwhile, some of the large deals in India include Juniper Green Energy, which raised $350 million, followed by the online quick commerce platform Zepto, securing $200 million.

The electric scooter company Ola Electric secured $140 million in funding, while Ather Energy raised $108 million via a rights issue instead of equity.

Captain Fresh, a fish and seafood supply chain platform, raised $71 million during the quarter, the report added.

Globally, clean technology (cleantech), including electric vehicles, accounted for more than half of the largest VC deals in Q3CY23, the report observed.

The report expects both energy and cleantech to remain key areas of investment as countries undergo an energy transition.

Among the major investments in the cleantech space, aside from India’s Juniper Green Energy, Chinese electric vehicle manufacturers such as Neta Auto, ROX Motor, and Farizon Auto saw significant investment activity.

Shanghai-based ROX Motor raised $1 billion in funding, followed by Zhejiang-headquartered Neta Auto at $969.4 million and Hangzhou-based Farizon, which raised $600 million as part of its Series A funding.

“Artificial intelligence, energy, and cleantech are expected to remain very attractive to VC investors across most jurisdictions,” the report added.